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Full text of "Capital; a critique of political economy"

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CAPITAL 

A CRITIQUE OF POLITICAL ECONOMY 



By KARL MARX 



VOLUME III 

THE PROCESS OF CAPITALIST PRODUCTION AS A WHOLE 



EDITED BY 

FREDERICK ENGELS 



Translated from the First German Edition by Ernest Untermann 



CHICAGO 

CHARLES H. KERR & COMPANY 

CO-OPERATIVE 



Copyright, 1909 
BY CHARLES H. KERR & COMPANY 






CONTENTS 



Preface 



PART I. 

THE CONVERSION OF SURPLUS-VALUE INTO PROFIT AND OF THE RATE OF SURPLUS-VALUE 
INTO THE RATE OF PROFIT. 

Chapter I.— Cost Price and Profit 37 

Chapter II. — The Rate of Profit 53 

Chapter III.— The Relation of the Rate of Profit to the Rate of Surplus- Value 63 

Chapter IV. — The Effect of the Turn-over on the Rate of Profit .... 85 

Chapter V. — Economies in the Employment of Constant Capital .... 93 

I. — ■ General Economies 92 

II. — Economies in the Conditions of labor at the expense of the Laborers 105 

Coal Mines. Neglect of the most Indispensable Expenditures . . . 105 
III. — Economies in the Generation of Power, Transmission of Power and 

Buildings 115 

IV. — Utilisation of the Excrements of Production 120 

V. — Economies Due to Inventions 123 

Chapter VI. — The Effect of Fluctuations in Price 125 

I. — Fluctuations in the Price of Raw Materials, and their Direct Effects 

on the Rate of Profit 125 

II. — Appreciation, Depreciation, Release, and Tie-up of Capital .... 131 
III — General Illustration. The Cotton Crisis of 1861-1S65. Preliminary 

History, 1845-1860 147 

Chapter VII. — Additional Remarks 163 

PART II. 

CONVERSION OF PROFIT INTO AVERAGE PROFIT. 

Chapter VIII. — Different Composition of Capitals in Different Lines of Pro- 
duction and Resulting Differences in the Rates of Profit 168 
Chapter IX. — Formation of a General Rate of Profit (Average Rate of Profit) 
and Transformation of the Values of Commodities into Prices 

of Production 182-' 

Chapter X. — Compensation of the Average Rate of Profit by Competition. 

Market Prices and Market Values. Surplus-Profit .... 203 
Chapter XI. — Effects of General Fluctuations of Wages on Prices of Pro- 
duction 234 

Chapter XII. — Some After Remarks 239 

I. — Causes Implying a Variation of the Price of Production 239 

II. — Price of Production of Commodities of Average Composition . . . 241 
III. — Fluctuations for which the Capitalist makes Allowance .... 243 

5 



493776 



6 Contents. 

PART III. 

THE lAW OF THE FALLING TENDENCY OF THE RATE OF PROFIT. 

PAGE 

Chapter XIII.— The Theory cf the Law 247 

Chapter XIV. — Counteracting Causes 272 

I. — Raising the Intensity of Exploitation 272 

II. — Depression of Wages Below their Value 276 

III. — Cheapening of the Elements of Constant Capital 276 

IV. — Relative Overpopulation 277 

v.— Foreign Trade 278 

VI.— The Increase of Stock Capital 281 

Chapter XV. — Unraveling the Internal Contradictions of the Law . . . 282 

I. — General Remarks 282 

II, — Conflict between the Expansion of Production and the Creation of 

Values 289 

III. — Surplus of Capital and Surplus of Population 294 

IV. — Supplementary Remarks 305 



PART IV. 

transformation of commodity-capital and money-capital into commercial capi- 
tal AND FINANCIAL CAPITAL (MERCHANT'S CAPITAL). / 

Chapter XVI. — Commercial Capital 314 

Chapter XVII. — Commercial Profit 330 

Chapter XVIIL— The Turn-over of Merchant's Capital. The Prices . . 356 

Chapter XIX. — Financial Capital 371 

Chapter XX. — Historical Data Concerning Merchant's Capital 380 



PART V. 

DIVISION OF PROFIT INTO INTEREST AND PROFITS OF ENTERPRISE. 
THE INTEREST-BEARING CAPITAL. 

Chapter XXI. — The Interest-Bearing Capital 397 

Chapter XXII. — Division of Profit. Rate of Interest. Natural Rate of In- 
terest 421 

Chapter XXIII. — Interest and Profit of Enterprise 434 

Chapter XXIV. — Externalisation of the Relations of Capital in the Form of 

Interest-Bearing Capital 459 

Chapter XXV. — Credit and Fictitious Capital 469 

Chapter XXVI. — Accumulation of Money-Capital. Its Influence on the Rate 

of Interest 489 

Chapter XXVII. — The Role of Credit in Capitalist Production .... 515 
Chapter XXVIII. — The Medium of Circulation (Currency) and Capital. 

Tooke's and Fullarton's Conception 523 

I. — Confounding the Definite Distinctions 524 

II. — Introducing the Question of the Quantity of Money Circulating To- 
gether in Both Functions 527 



Contents. 7 

PAGE 
III. — Introduction of the Question of the Relative Proportions of the Quan- 
tities of Currency Circulating in Both Functions and Thus in Both 

Spheres of the Process of Reproduction 527 

Chapter XXIX.— The Composition of Banking Capital 545 

Chapter XXX.— Money-Capital and Actual Capital, 1 559 

Chapter XXXI.— Money-Capital and Actual Capital, II 58o 

I- — Conversion of Money into Loan Capital 58i 

II. — Conversion of Capital or Revenue into Money that is Transformed into 

Loan Capital 5g9 

Chapter XXXIL— Money-Capital and Actual Capital, III 593 

Chapter XXXIII. — The Currency under the Credit System 611 

Chapter XXXIV.— The Currency Principle and the English Bank Laws of 

1844 642 

Chapter XXXV. — Precious Metals and Rates of Exchange 663 

L — The Movements of the Gold Reserve 663 

\ n. — The Rate of Exchange . . . . ^ 574 

III. — Rate of Exchange with Asia g^g 

IV'. — England's Balance of Trade 693 

Chapter XXXVI.— Precapitalist Conditions ggg 

Interest in the Middle Ages 7jg \ ^ 

PART VL 

transformation of surplus profit into ground-rent. 

Chapter XXXVII. — Preliminaries 720 

Chapter XXXVIII.— Differential Rent. General Remarks 749 

Chapter XXXIX.— The First Form of Differential Rent 760 

Chapter XL. — The Second Form of Differential Rent 787 

Chapter XLI. — Differential Rent II. — First Case: Constant Price of Pro- 
duction gQ-| 

Chapter XLIL— Differential Rent IL — Second Case: Falling Price of Pro- 
duction gjQ 

!•— The Productivity of the Additional Investment of Capital Remains 

the same gjQ 

IL— The Rate of Productivity of the Additional Capitals Decreases . . 819 

III.— The Rate of Productivity of the Additional Capitals Increases . . 821 
Chapter XLIIL— Differential Rent No. II.— Third Case: Rising Price of 

Production cog 

Chapter XLIV.— Differential Rent Even Upon the Worst Soil under Culti- 



vation 



856 



Chapter XLV. — Absolute Ground-Rent gg7 

Chapter XLVI. — Building Lot Rent. Mining Rent. Price of Land . . . 897 

Chapter XLVII. — Genesis of Capitalist Ground Rent 9O8 

I. — Introductory Remarks gog 

•-^II. — Labor Rent q,™ 

— III.— Rent in Kind ! . 922 

^IV. — Money Rent g25 

V. — Share Farming (Metairie System; and Small Peasants' Property . . 933 



8 Contents. 



PART VII. 

THE REVENUES AND THEIR SOURCES. 

PAGE 

CuAPTER XLVIII. — The Trinitarian Foi inula 947 

Chapteji XLIX. — A Contribution to the Analysis of the Process of Pro- 
duction 968 

Chapte* L. — The Semblance of Competition 992 

Chapter LI. — Conditions of Distribution and Production 1022 

Chapter LIL— The Classes i031 



PREFACE. 

At last I have the pleasure of making public this third 
■volume of the main work of Marx, the closing part of his 
economic theories. When I published the second volume, 
in 188 5, I thought that the third would probably offer only 
technical difficulties, with the exception of a few very im- 
portant sections. This turned out to be so. But that these 
exceptional sections, which represent the most valuable parts 
of the entire work, would give me as much trouble as they 
did, T could not foresee at that time any more than I an- 
ticipated the other obstacles, which retarded the completion 
of the work to such an extent. 

In the first place it was a weakness of my eyes which re- 
stricted my time of writing to a minimum for years, and 
which permits me even now only exceptionally to do any 
writing by artificial light. There were furthermore other 
labors which I could not refuse, such as new editions and 
translations of earlier works of Marx and myself, revisions, 
prefaces, supplements, which frequently required special 
study, etc. There was above all the English edition of the 
first volume of this work, for whose text I am ultimately re- 
sponsible and which absorbed much of my time. Whoever 
has followed the colossal growth of international socialist lit- 
erature during the last ten years, especially the great number 
of translations of earlier works of Marx and myself, will 
agree with me in congratulating myself that there is but 
a limited number of languages in which I am able to assist 
a translator and which compel me to accede to the request for 

9 



lo Preface. 

a revision. This growth of literature^ however, was but an 
evidence of a corresponding growth of the international work- 
ing class movement itself. And this imposed new obligations 
on me. From the very first days of our public activity, a 
good deal of the work of negotiation between the national 
movements of socialists and working people in the various 
countries had fallen on the shoulders of Marx and myself. 
This work increased to the extent that the movement as a 
whole gained in strength. Up to the time of his death, Marx 
had borne the brunt of this burden. But after that the ever 
swelling amount of work had to be done by myself alone. 
Meanwhile the direct intercourse between the various national 
labor parties has become the rule, and fortunately it is be- 
coming more and more so. Nevertheless my assistance is 
still in demand a good deal more than is agreeable to me in 
view of my theoretical studies. But if a man has been active 
in the movement for more than fifty years, as I have, he re- 
gards the work connected with it as a duty, which must not 
be shirked, but immediately fulfilled. In our stirring times, 
as in the 16th century, mere theorizers on public affairs are 
found only on the side of the reactionaries, and for this 
reason these gentlemen are not even theoretical scientists, but 
simply apologists of reaction. 

The fact that I live in London implies that my intercourse 
with the party is limited in winter to correspondence, while 
in summer time it largely takes place by personal intendews. 
This fact, and the necessity of following the course of the 
movement in a steadily growing number of countries and a 
still more rapidly increasing number of party organs, com- 
pelled me to reserve matters which brooked no interruption 
for the winter months, preferably the first three months of 
the year. When a man is past seventy, his brain's fibers of 
association work with a certain disagreeable slowness. He 



Prefece. 1 1 

does not overcome interruptions of difficult theoretical prob- 
lems as easily and quickly as formerly. Thus it came about 
that the work of one winter, if it was not completed, had to be 
largely done over the following winter. And this took place 
particularly in the case of the most difficult section, the fifth. 

The reader will observe by the following statements that 
the work of editing the third was essentially different from 
that of the second volume. Nothing was available for the 
third volume but a first draft, and it was very incomplete. 
The beginnings of the various sections were, as a rule, pretty 
carefully elaborated, or even polished as to style. But the 
farther one proceeded, the more sketchy and incomplete was 
the analysis, the more excursions it contained into side issues 
whose proper place in the argument was left for later decision, 
the longer and more complex became the sentences, in which 
the rising thoughts were deposited as they came. In several 
places, the handwriting and the treatment of the matter 
clearly revealed the approach and gradual progress of those 
attacks of ill health, due to overwork, which at first rendered 
original work more and more difficult for the author and 
finally compelled him from time to time to stop work alto- 
gether. And no wonder. Between 1863 and 1867, Marx 
had not only completed the first draft of the two last vol- 
umes of Capital and made the first volume ready for the 
printer, but had also mastered the enormous work connected 
with the foundation and expansion of the International 
Workingmen's Association. The result was the appearance of 
the first symptoms of that ill health which is to blame for 
the fact that Marx did not himself put the finishing touches 
to the second and third volumes. 

I began my work on these volumes by first dictating the 
entire manuscript of the original, which was often hard to 
decipher even for me, into readable copy. This required con- 



12 Preface. 

siderable time to begin with. It was only then that the real 
work of editing could proceed. I have limited this to the 
necessary minimum. Wherever it was sufficiently clear, I 
preserved the character of the first draft as much as possible. 
I did not even eliminate repetitions of the same thoughts, 
when they viewed the subject from another standpoint, as 
was Marx's custom, or at least expressed the same thought 
in different words. In cases where my alterations or addi- 
tions are not confined to editing, or where I used the material 
gathered by Marx for independent conclusions of my own, 
which, of course, are made as closely as possible in the spirit 
of Marx, I have enclosed the entire passage in brackets and 
aflBxed my initials. My footnotes may not be inclosed in 
brackets here and there, but wherever my initials are found, 

I am responsible for the entire note. 

It is natural for a first draft, that there should be many 
passages in the manuscript which indicate points to be elab- 
orated later on, without being followed out in all cases. I 
have left them, nevertheless, as they are, because they reveal 
the intentions of the author relative to future elaboration. 

Now as to details. 

For the first part, the main manuscript was sei-viceable 
only with considerable restrictions. The entire mathematical 
calculation of the relation between the rate of surplus-value 
and the rate of profit (making up the contents of our chap- 
ter III) is introduced in the very beginning, while the sub- 
ject treated in our chapter I is considered later and in- 
cidentally. Two attempts of Marx at rewriting were useful 
in this case, each of them comprizing eight pages in folio. 
But even these were not consecutively worked out. They 
furnished the substance of what is now chapter I. Chapter 

II is taken from the main manuscript. There were quite a 
number of incomplete mathematical elaborations of chapter 



Preface. 13 

III, and in addition thereto an entire and almost complete 
manuscript, \vritten in the seventies and dealing with the re- 
lation of the rate of surplus-value to the rate of profit, in the 
form of equations. My friend Samuel Moore, who had done 
the greater portion of the translation of the first volume, 
undertook to edit this manuscript for me, a work for which 
he was certainly better fitted than I, since he graduated from 
Cambridge in mathematics. By the help of his summary, and 
with an occasional use of the main manuscript, I completed 
chapter III. ISTothing Avas available for chapter IV but the 
title. But as the point of issue, the effect of the turn-over on 
the rate of profit, is of vital importance, I have elaborated 
it myself. For this reason the whole chapter has been placed 
between brackets. It was found in the course of this work, 
that the formula of chapter III for the rate of profit required 
some modification, in order to be generally applicable. Be- 
ginning with chapter V, the main manuscript is the sole basis 
for the remainder of Part I, although many transpositions and 
supplements were needed for it. 

For the following three parts I could follow the original 
manuscript throughout, aside from editing the style. A few 
passages, referring mostly to the influence of the turn-over, 
had to be brought into agreement with my elaboration of 
chapter IV; these passages are likewise placed in brackets 
and marked with my initials. 

The main difficulty was presented by Part V, which treated 
of the most complicated subject in the entire volume. And 
it was just at this point that Marx had been overtaken by one 
of those above-mentioned serious attacks of illness. Here, 
then, we had no finished draft, nor even an outline which 
might have been perfected, but only a first attempt at an 
elaboration, which more than once ended in a disarranged 
mass of notes, comments and extracts. I tried at first to com- 



14 Preface. 

plete this part, as I had the first one, by filling out vacant 
spaces and fully elaborating passages that were only indi- 
cated, so that it would contain at least approximately every- 
thing which the author had intended. I tried this at least 
three times, but failed every time, and the time lost thereby 
explains most of the retardation. At last I recognized that 
I should not accomplish my object in this way. I should 
have had to go through the entire voluminous literature of 
this field; and the final result would have been something 
which would not have been Marx's book. I had no other 
choice than to cut the matter short, to confine myself to as 
orderly an arrangement as possible, and to add only the most 
indispensable supplements. And so I succeeded in completing 
the principal labors for this part in the spring of 1893. 

As for the single chapters, chapters XXI to XXIV were, 
in the main, elaborated by Marx. Chapters XXV and 
XXVI required a sifting of the references and an interpola- 
tion of material found in other places. Chapters XXVII and 
XXIX could be taken almost completely from the original 
manuscript, but chapter XXVIII had to be arranged differ- 
ently in several places. The real difficulty began with chap- 
ter XXX. From now on the task before me was not only 
the arrangement of the references, but also a connecting of 
the line of reasoning, which was interrupted every moment 
by intervening clauses, deviations from the main point, etc., 
and taken up incidentally in quite another place. Thus chap- 
ter XXX came into existence by means of transpositions and 
eliminations utilized in other places. Chapter XXXI, again, 
was worked out more connectedly. But then followed a long 
section in the manuscript, entitled " The Confusion," consist- 
ing of nothing but extracts from the reports of Parliament on 
the crises of 1848 and 1857, in which the statements of 
twenty-three business men, and writers on economics, espe- 



Preface. 1 5 

ilally rfilative to money and capital, gold exports, over-specu- 
lation, etc., are collected and accompanied here and there with 
^hort and playful comments. In this collection, all the cur- 
rent views of that time concerning the relation of money to 
capital are practically represented, either by answers or ques- 
tions, and Marx intended to analyze critically and satirically 
the confusion revealed by the ideas as to what was money, 
and what capital, on the money-market. I convinced myself 
after many experiments that this chapter could not be com- 
posed. I have used its material, particularly that criticized 
by Marx, wherever I found a connection for it. 

!N'ext follows in tolerable order the material which I have 
placed in chapter XXXII. But this is immediately followed 
by a new batch of extracts from reports of Parliament on 
every conceivable subject germane to thi^ part, intermingled 
with comments of the author. Toward the end these com- 
ments are mainly directed toward the movement of money 
metals and the quotations of bills of exchange, and they close 
with miscellaneous remarks. On the other hand, chapter 
XXXV, entitled " Precapitalist Conditions," was fully elab- 
orated. 

Of all this material, beginning with the " Confusion," and 
using as much of it as had not been previously placed other- 
wise, I made up chapters XXXIII to XXXV. Of course 
this could not be done without considerable interpolations on 
my part in order to complete the connections. Unless these 
interpolations are of a merely formal nature, they are ex- 
pressly marked as belonging to me. In this way I have suc- 
ceeded in placing all the relevant statements of the author 
in the text of this work. Xothing has been left out but a 
small portion of the extracts, which either repeated statemente 
already made previously, or touched on points ivhich the 
original manuscript did not treat in detail. 



1 6 Preface. 

The part dealing with ground-rent was much more fully 
elaborated, although not properly arranged. This is apparent 
from the fact that Marx found it necessary to recapitulate 
the plan of the entire part in chapter XLIII, which was 
the last portion of the section on rent in the manuscript. This 
was so much more welcome to the editor, as the manu- 
script began with chapter XXXVII, which was followed 
by chapters XLV to XLVII, whereupon chapters XXXVIII 
to XLIV came next in order. The greatest amount of labor 
was involved in getting up the tables for the differential rent, 
II and in the discovery that the third case of this class of 
rent, which belonged in chapter XLIII, had not been analyzed 
there. 

Marx had made entirely new and special studies for this 
part on ground rent, in the seventies. He had studied for 
years the originals of the statistical reports and other publica- 
tions on real estate, which had become inevitable after the 
" reform " of 1861 in Russia. Tie had made extracts from 
these originals, which had been placed at his disposal to the 
fullest extent by his Russian friends, and he had intended to 
use these notes for a new elaboration of this part. Owing 
to the variety of forms represented by the real estate and 
the exploitation of the agricultural producers of Russia, this 
country was to play the same role in the part on ground rent 
that England did in volume I in tlie case of industrial wage- 
labor. Unfortunately he was prevented from carrying out 
this plan. 

The seventh part, finally, was fully written out, but only as 
a first draft, whose endlessly involved periods had to be dis- 
sected, before they could be presented to the printer. Of the 
last chapter, only the beginning existed. In it the three great 
classes of developed capitalist society, land owners, capitalists 
and wage laborers, corresponding to the three great forms of 



Preface. 17 

revenue, and the class-struggle necessarily arising with their 
existence, were to be presented as the actual outcome of the 
capitalist period. It was a habit of Marx to reserve such 
concluding summaries for the final revision, so that the latest 
historical developments furnished him with never failing reg- 
ularity with the proofs of the correctness of his theoretical 
analyses. 

The quotations and extracts corroborating his statements are 
considerably less numerous than in the first volume, as they 
already were in the second. Wherever the manuscript re- 
ferred to statements of earlier economists, only the name was 
given as a rule, and the quotations were to be added later. Of 
course, I had to leave this as it was. Of reports of parlia- 
ment only four have been used, but these were abundantly 
exploited. They are the following: 

1) Reports from Committees (of the Lower House), Vol- 
ume VIII, Commercial Distress, Volume II, Part I, 1847-48. 
Minutes of Evidence. Quoted as " Commercial Distress, 
1847-48." 

2) Secret Committee of the House of Lords on Commer- 
cial Distress, 1847. Eeport printed 1848. Evidence printed 
1857 (because it was considered too hazardous in 1848). — 
Quoted as " Commercial Distress, 1848-57." 

3) & 4) Report, Bank Acts, 1857.— The same, 1858.— 
Reports of the Committee of the Lower House on the Effect 
of the Bank Acts of 1844 and 1845. With evidence.— 
Quoted as " Bank Acts," or " Bank Committee," 1857 or 
1858. 

I hope to start on the fourth volume, the history of theories 
of surplus-value, as soon as conditions will pemiit me. 



In the preface to the second volume of Capital I had to 
square accounts with those gentlemen, who were making much 

B 



1 8 Preface. 

ado over the alleged fact that they had discovered in the per- 
son of Rodbertus the " Secret source and a superior prede- 
cessor to Marx." I offered them an opportunity to show what 
the economics of Eodbertus could accomplish. I asked them 
to demonstrate the way " in which an equal average rate of 
profit can and must come about, not only without a violation 
of the law of value, but by means of it." These same gentle- 
men, who were then celebrating the brave Rodbertus as an 
economist star of the first magnitude, either for subjective or 
objective reasons which were as a rule anything but scientific, 
have without exception failed to answer the problem. How- 
ever, other people have thought it worth their w'hile to occupy 
themselves with this problem. 

In his critique of the second volume (Conrad's Jahrhilclier, 
XI, 1885, pages 452-65), Professor Lexis takes up this ques- 
tion, although he does not pretend to give a direct solution 
of it. He says : " The solution of that contradiction " 
(namely the contradiction between the law of value of Ri- 
cardo-Marx and an equal average rate of profit) " is impos- 
sible, if the various classes of commodities are considered in- 
dividually, if their value is to be equal to their exchange- 
value, and this again equal or proportional to their price." 
According to him this solution is possible only, if " the deter- 
mination of value for the individual commodities according to 
labor is relinquished, the production of commodities viewed as 
a whole, and their distribution among the aggregate classes 
of capitalists and laborers regarded from the same point of 
view. . . . The laboring class receives but a certain por- 
tion of the total product, . . . the other portion falls to 
the share of the capitalists and represents the surplus-product, 
as understood by Marx, and accordingly . . . the sur- 
plus-value. The members of the capitalist class divide this 
entire surplus-value among themselves, not in proportion to the 



Preface. 19 

number of laborers employed by them, but in proportion to the 
amount of capital invested by each one. The land is thereby 
regarded as belonging in the class of capital-value." The 
Marxian ideal values determined by the units of labor incor- 
porated in the commodities do not correspond to the prices, 
but may be " regarded as points o£ departure of a movement, 
which leads to the actual prices. These are conditioned on 
the fact that capitals of equal magnitude demand equal 
profits." In consequence some capitalists will secure higher 
prices for their commodities than the ideal values, and others 
will secure less. " But since the losses or gains of surplus- 
value mutually balance one another in the capitalist class, the 
total amount of the surplus-value is the same as though all 
prices were proportional to the ideal values." 

It is evident that the problem has not been solved by any 
means through these statements, but it has been at least cor- 
rectly formulated, although in a somewhat loose and shallow 
manner. And this is, indeed, more than we had a right to 
expect from a man who prides himself somewhat on being a 
" vulgar economist." It is even surprising when compared 
with the handiwork of some other vulgar economists, which 
we shall discuss later. The vulgar economy of Lexis is of a 
rather peculiar nature. He says that the gains of the capital- 
ist may be derived in the way indicated by Marx, but there 
are no reasons that would compel us to accept this view. On 
the contrary, vulgar economy is said to have a simpler expla- 
nation, namely the following : " The capitalist sellers, such 
as the producer of raw materials, the manufacturer, the whole- 
sale dealer, the retail dealer, all make a profit on their trans- 
actions, each selling his product at a higher price than the 
purchase price, each adding a certain percentage to the price 
paid by him. The laborer alone is unable to raise the price 
of his commodity, he is compelled, by his oppressed condition, 



20 Preface. 

to sell his labor to the capitalist at a price corresponding to 
its cost of production, that is to say, for the means of his sub- 
sistence. . . . Therefore the capitalist additions to the 
prices strike the laborer with full force and result in the 
transfer of a part of the value of the total product to the capi- 
talist class." 

I^ow it does not require much thought to show that this 
explanation of vulgar economy for the profits of capital 
amounts to the same thing as the Marxian theory of surplus- 
value. For Lexis thus admits that the laborers are in just 
that forced condition of oppression which Marx has described ; 
that they are just as much exploited here as they are according 
to Marx, because every idler can sell commodities above their 
value, while the laborer alone cannot do so ; and that it is j^st 
as easy to build up a plausible vulgar socialism on this theory, 
as it was to build up another kind of socialism in England 
on the foundation of Jevons' and Menger's theory of use- 
value and marginal profit. I strongly suspect that Mr. 
George Bernard Shaw, were he familiar with this theory of 
profit, would eagerly extend both hands for it, discard Jevons 
and Karl Menger, and build on this rock the Fabian church 
of the future. 

In reality, this theory is merely a transcript of the Marxian. 
What is the fund out of which all these additions to the prices 
are paid ? The " total product " of the working class. And 
it is due to the fact that the commodity " labor," or, as Marx 
has it, " labor-power," must be sold below its price. For if 
it is a common quality of all commodities to be sold at a 
price above their cost of production, with the sole exception of 
labor, then labor is sold below the price which is the rule in 
this world of vulgar economy. The extra profit thus accruing 
to the capitalist, or to the capitalist class, then arises in the 
last analysis from the fact that the laborer, after he has made 



Preface. 2 1 

up for the price of his labor-power by reproducing it, must 
produce a surplus-product for which he is not paid, in other 
words, he produces surplus-value representing unpaid labor. 
Lexis is very careful in the choice of his terms. He does not 
say anywhere outright that this is his own conception. But if 
it is, then it is evident that he is not one of those vulgar 
economists, every one of whom is, as he says himself, " a hope- 
less idiot in the eyes of Marx," but that he is a Marxian dis- 
guised as a vulgar economist. Whether this disguise is con- 
sciously or unconsciously adopted, is a psychological ques- 
tion which does not interest us at this point. The man who 
can find this out may also be able to discover how it is that 
some time ago a man of Lexis' intellectual endowments could 
defend such nonsense as bimetallism. 

The first one who really attempted to answ^er this question 
was Dr. Konrad Schmidt in his pamphlet entitled. The 
Average Rate of Profit, Based on Marx's Theory of Value, 
Stuttgart, Dietz, 1889. Schmidt seeks to reconcile the de- 
tails of the formation of commodity prices with the 
theory of value and with an average rate of profit. The 
industrial capitalist receives in his product, first, an equiv- 
alent for the capital advanced by him, and second, a sur- 
plus-product for which he has not paid anything. But in 
order to earn his surplus-product, he must advance capital for 
its production. He must employ a certain quantity of ma- 
terialized labor for the purpose of appropriating this surplus- 
product. For the capitalist, the capital advanced by him 
represents the quantity of materialized labor which is socially 
necessary for the production of his surplus-product. This 
applies to every industrial capitalist. Now, since commodi- 
ties, according to the theory of value, are exchanged for one 
another in proportion to the social labor required for their 
production, and since the labor necessary for the manufacture 



22 Preface. 

of the capitalist's surplus-product is accumulated in the cap- 
ital of the capitalist, it follows that surplus-products are ex- 
changed in proportion to the capitals required for their pro- 
duction, and not in proportion to the labor actually incor- 
porated in them. Hence the share of each unit of capital is 
equal to the sum of all produced surplus-values divided by 
the sum of the capitals employed in production. Accordingly, 
equal capitals yield equal profits in equal times, and this is 
accomplished by adding the cost price of the surplus-product 
figured on the basis of the average profit to the cost price 
of the paid product and selling both the paid and unpaid 
product at this increased price. Thus the average rate of 
profit arises in spite of the fact that, according to Schmidt, 
the average prices of commodities are determined by the law 
of value. 

This is a very ingenious construction. It is made entirely 
after the Hegelian model, but it has this in common with the 
majority of the Hegelian constructions that it is not correct. 
It makes no difference whether the surplus-product or the 
paid product is considered. If the theory of value is to be ap- 
plied directly to the average profit both of these products must 
be sold in proportion to the socially necessary labor incorpor- 
ated in them. The theory of value is aimed at the very outset 
against the idea, derived from the capitalist mode of thought, 
that the accumulated labor of the past, which is embodied in 
capital, could be anything else but a certain quantity of finished 
values, namely also a creator of values greater than itself, see- 
ing that it is an element in production and in the formation 
of profit. The theory of value demonstrates that living labor 
alone has this faculty of creating surplus-values. It is well 
known that the capitalists expect to reap profits in proportion 
to the magnitude of their capitals, looking upon their advances 
of capital as a sort of cost price of their profits. But if 



Preface. 23 

Schmidt utilizes this conception for the purpose of harmoniz- 
ing by means of it the prices calculated according to the aver- 
age rate of profit and those based on the theory of value, he 
thereby repudiates this theory of value, for he embodies in 
it as one of its factors a conception which is wholly at variance 
with it. 

Either accumulated labor creates values the same as living 
labor, and in that case the law of value does not apply. 

Or, it is not a creator of values, and in that case Schmidt's 
demonstration is irreconcilable with the law of value. 

Schmidt was misled into straying into this bypath when 
being quite close to the solution, because he believed that he 
would have to find as mathematical a formula as possible, by 
which the agreement of the average price of every individual 
commodity with the law of value could be demonstrated. But 
while he has followed a wrong path in this instance, close to 
the real goal, he shows by the rest of his booklet that he 
has very understandingly drawn other conclusions from the 
first two volumes of Capital. His is the honor of having 
found by independent effort the correct answer given by 
Marx in the third part of the third volume of his work for 
the hitherto inexplicable sinking tendency of the rate of 
profit ; and of having furthermore correctly shown the genesis 
of commercial profit out of industrial surplus-value, and of 
having made a series of statements concerning interest and 
ground rent, by which he has anticipated things developed 
by Marx in the fourth and fifth part of the third volume of 
his work. 

In a subsequent article (Neue Zeit, 1892-93, ISTos. 4 and 
5), Schmidt tries another way to solve the problem. It 
amounts to the statement that competition brings about an 
average rate of profit by causing the emigration of capital 
from lines of production with profit below the average to 



24 Preface. 

lines with profit above the average. There is nothing new in 
the statement that competition is the great equalizer of profits. 
But Schmidt tries to prove that this leveling of profits is 
identical with a reduction of the selling price of commodi- 
ties produced in excess to a measure in keeping with a price 
which society can pay for it according to the law of value. 
The analyses of Marx in this work show sufficiently why this 
way could not lead to any solution. 

After Schmidt, it was P. Fireman who attempted a solu- 
tion of the problem (Conrad's Jalirhucher, dritte Folge, III, 
page 793). I shall not discuss his remarks on some of the 
other aspects of the Marxian analyses. He starts out from 
the mistaken assumption that Marx wishes to define where 
he is only analyzing, or that one may look in Marx's work at 
all for fixed and universally applicable definitions. It is a 
matter of course that when things and their mutual interrela- 
tions are conceived, not as fixed, but as changing, that their 
mental images, the ideas concerning them, are likewise sub- 
ject to change and transformation; that they cannot be sealed 
up in rigid definitions, but must be developed in the histor- 
ical or logical process of their formation. From this it will be 
understood why Marx starts out in the beginning of his first 
volume, where he makes the simple production of commodities 
his historical premise and then proceeds from this basis to 
capital, from a simple commodity instead of its ideologically 
and historically secondary form, a capitalistically modified 
commodity. Fireman cannot understand that at all. I pre- 
fer to pass over these and other side-issues and proceed at 
once to the gist of the matter. While the author is taught 
by the theory that surplus-value is proportional to the labor- 
powers employed, provided a certain rate of surplus-value is 
given, he learns from experience that profit is proportional 
to the magnitude of the total capital employed, provided a 



Preface. 25 

certain average rate of profit is given. Fireman explains this 
by saying that profit is merely a conventional phenomenon 
(which means, in his language, that it belongs to a definite 
social formation with which it stands and falls). Its exist- 
ence is simply dependent on capital. If this is strong enough 
to secure a profit for itself, it is also compelled by competition 
to bring about the same rate of profit for all capitals. In 
other words, capitalist production is impracticable without an 
equal rate of profit. Assuming this to be the mode of pro- 
duction, the quantity of profit for the individual capitalist 
can depend only on the magnitude of his capital, if the rate of 
profit is given. On the other hand, profit consists of surplus- 
value, of unpaid labor. And how is the transformation of 
surplus-value, determined in quantity by the degree of labor 
exploitation, into profit, determined in quantity by the mag- 
nitude of the employed capital, accomplished ? " Simply by 
selling commodities above their value in all lines of production 
in which the ratio between . . . constant and variable 
capital is greatest, and this implies on the other hand that the 
commodities are sold below their value in all lines of produc- 
tion in which the ratio between constant and variable capital 
is smallest, so that commodities are sold at their true value 
only in lines of production in which the ratio of c:v repre- 
sents a definite medium magnitude. ... Is this discrep- 
ancy between the prices and values of commodities a refuta- 
tion of the principle of value ? By no means. For since the 
prices of some commodities rise above value to the same extent 
that the prices of others fall below it, the total sum of prices 
remains equal to the total sum of values . . . the incon- 
gruity disappears in the last instance." This incongruity is 
a " disturbance " ; and " in the exact sciences it is not the 
custom to regard a calculable disturbance as a refutation of a 
certain law." 



26 Preface. 

On comparing the relevant passages of chapter IX with 
these statements, it will be seen that Fireman has indeed 
placed his finger on the salient point. But the undeservedly 
cool reception given to his able article proves that Fireman 
still needed many interconnecting links, even after this dis- 
covery of his, before he would have been enabled to work out a 
full and comprehensible solution. Although many were in- 
terested in this problem, they were all afraid of burning their 
fingers with it. And this is due not only to the incomplete 
form in which Fireman left his discovery, but also to the un- 
deniable faultiness of his conception of the Marxian analyses 
and his critique of them based on his misconception. 

Whenever there is an opportunity to make himself ridicu- 
lous by attempting a difficult feat, professor Julius Wolf of 
Ziirich never fails to exhibit himself. He tells us (Conrad's 
JaJirhucher, neue Folge, II, pages 352 and following) that 
the entire problem is solved by the relative surplus-value. 
The production of relative surplus-value rests on the increase 
of the constant capital as compared to the variable capital. 
" A plus in constant capital has for its premise a plus in the 
productive power of the laborers. Since this plus in produc- 
tive power (by way of cheapening the necessities of life) pro- 
duces a plus in surplus-value, the direct relation between an 
increase of surplus-value and an increasing share of the con- 
stant capital in the total capital is revealed. A plus in con- 
stant capital indicates a plus in the productive power of labor. 
Therefore, if the variable capital remains the same and the 
constant capital increases, surplus-value must also increase, 
and we are in agreement with Marx. This was the problem 
which we were to solve." 

Now Marx says the direct opposite in a hundred passages 
of the first volume. Furthermore, the assertion that, accord- 
ing to Marx, relative surplus-value increases in proportion 



' Preface. 27 

as the constant capital is augmented while the variable capi- 
tal decreases, is so astounding that it defies all parliamentarian 
language. And finally Mr. Julius Wolf demonstrates in every 
line that he has neither relatively nor absolutely the least 
understanding of relative or absolute surplus-value. Truly 
he says that " at first glance one seems to be in a nest of in- 
congruities," which, by the way, is the only true statement 
in his whole article. But what does that matter ? Mr. Julius 
Wolf is so proud of his brilliant discovery that he cannot 
refrain from bestowing posthumous praise on Marx for it and 
advertising his own fathomless nonsense as a " renewed proof 
of the acuteness and farsightedness with which Marx has 
drawn up his critical system of capitalist economy." 

But that is not the worst. Mr. Wolf says : " Ricardo like- 
wise claimed that an equal investment of capital yielded equal 
surplus-values (profit), and that the same expenditure of labor 
created the same amount of surplus-value. And the question 
was : How does the one agree with the other ? But Marx 
did not acknowledge this form of the problem. He has doubt- 
less shown (in the third volume), that the second statement 
is not necessarily a consequence of the law of value, or that 
it even contradicts his law of value and must, therefore, 
. . . be directly repudiated." And thereupon Wolf seeks 
to find out whether Marx or I made a mistake. Of course, 
it does not occur to him that he is the one who is wandering in 
darkness. 

It would be an insult to my readers, and a total disregard 
for the humor of the situation, were I to lose one word about 
this gem of a passage. I merely wish to add this : With the 
same boldness, which enabled him to foretell even then what 
Marx *' has doubtless shown " in the third volume, he avails 
himself of this opportunity to report an alleged gossip among 
the professors to the effect that Konrad Schmidt's above- 



28 Preface. 

named work was " directly inspired by Engels." Mr. Julius 
Wolf ! In the world in wliicli you live it may be customary 
for a man to challenge others publicly for the solution of some 
problem and to acquaint his private friends clandestinely with 
this solution. That you are capable of such a thing is not 
hard to believe. But that a man need not stoop to such mean 
tricks in the world in which I live, is shown by the present 
preface. 

Marx had hardly died, when Mr. Achille T^oria hastily 
published an article about him in the Nuova Antologia (April, 
1883). He starts out with a biography of Marx full of mis- 
information, and follows it up with a critique of Marx's public, 
political and literary activity. He misrepresents the mate- 
rialist conception of history of Marx and twists it with an 
assurance which indicates a great purpose. And this purpose 
was later accomplished. In 188G, the same Mr. Loria pub- 
lished a book entitled La teoria economica delta costituzione 
politica (The Economic Foundations of Society), in which 
he announced to his admiring contemporaries that the ma- 
terialist conception of history, so completely and purposely 
misrepresented by him in 1883, was his own discovery. True, 
the Marxian theory is reduced to a rather Philistine level in 
this book. And the historical illustrations and proofs abound 
in mistakes which would not be pardoned in a high school 
boy. But what does that matter ? He thinks he has estab- 
lished his claim that the discovery that always and every- 
where the political conditions and events are explained by cor- 
responding economic conditions was not made by Marx in 
1845, but by Mr. Loria in 1886. At least this is what he has 
tried to make his countrymen believe, and also some French- 
men, for his book has been translated into French. And now 
he can pose in Italy as the author of a new and epoch-making 



Preface. 29 

theory of history, until the Italian socialists will find time to 
strip the illustre Loria of his stolen peacock feathers. 

But this is only an insignificant sample of Mr. Loria's style 
of doing things. He assures us that all of Marx's theories 
rest on conscious sophistry (un consapido sofisma) ; that Marx 
was not above using false logic, even though he knew it to be 
so (sapendolitali), etc. And after thus biasing his readers 
by a whole series of such contemptible insinuations, in order 
that they may regard Marx as just such an unprincipled up- 
start as Loria, accomplishing his effects by the same shameless 
and foul means as this professor from Padua, he has a very 
important secret for the readers, and incidentally he touches 
upon the rate of profit. 

Mr. Loria says : According to Marx, the amount of sur- 
plus-value (which Mr. Loria here mistakes for profit) pro- 
duced in an industrial establishment under capitalism de- 
pends on the variable capital employed in it, since the con- 
stant capital does not yield any profit. But this is contrary to 
fact. Lor in practice the profit is not measured by the vari- 
able, but by the total capital. And Marx himself recognizes 
this (Vol. I, chapter XI) and admits that the facts seem to 
contradict his theory. But how does he get over this contradic- 
tion ? He refers his readers to a subsequent volume which 
has not yet been published. Loria had previously told his 
readers with reference to this unpublished volume, that he 
did not believe that Marx had ever thought for a moment of 
writing it. And now he exclaims triumphantly : " Not 
without good reason did I contend that this second volume, 
which Marx always flings into the teeth of his adversaries 
without ever publishing it, might very well be a shrewd ex- 
pedient, to which Marx always resorted whenever scientific 
arguments failed him (un ingegnoso spediente ideato dal 



30 Preface. 

Marx a sostituzione degli argomenti scientifid). And who- 
ever is not convinced after this that Marx stood on the same 
level of scientific swindle with the illustre Loria, is past all 
redemption. 

We have at least learned this much : According to Mr. 
Loria, the Marxian theory of surplus-value is absolutely ir- 
reconcilable with the fact of a general and equal rate of 
profit. But at last the second volume of Capital appeared. 
It contained my public challenge referring to this point. If 
Mr. Loria had been one of us diffident Germans, he would 
have felt a certain embarrassment. But he is a bold south- 
erner, he comes from a hot climate and can claim that a cool 
nerve is a natural requirement for him. The question con- 
cerning the rate of profit has been publicly put. Mr. Loria 
has publicly declared that it is insoluble. And for this very 
reason he is now going to outshine himself by publicly solv- 
ing it. 

This miracle is accomplished in Conrad's Jahrhucher, N. 
F., vol. XX, pages 272 and following, in an article dealing 
with Konrad Schmidt's above-cited pamphlet. After Loria 
has learned from Schmidt how the commercial profit is made, 
he sees everything clearly. " Since a determination of value 
by means of labor-time gives an advantage to those capitalists 
who invest a greater portion of their capital in wages, the 
unproductive " (he means commercial) " capital can extort 
from these privileged capitalists a higher interest " (he means 
profit) " and thus bring about an equalization between the 
individual industrial capitalists. , . . For instance, if 
each of the industrial capitalists A, B, C, use 100 working 
days and 0, 100^ and 200 constant capital respectively in 
production, and if the wages for 100 working days amount 
to 50 working days, then every capitalist receives a surplus- 
value of 50 working days, and the rate of profit is 100% 



Preface. 3 1 

for the first 33.3% for the second, and 20% for the third 
capitalist. But if a fourth capitalist D accumulates an un- 
productive capital of 300, which extorts an interest " (profit) 
" equal in value to 40 working days from A, and an interest 
of 20 working days from B, then the rate of profit of the 
capitalists A and B will sink to 20% the same as that of 
C, and D with his capital of 300 will receive a profit of 
60, or a rate of profit of 20%, the same as the other cap- 
italists." 

With such astonishing dexterity I'illustre Loria solves 
sleight of hand fashion the same question which he had de- 
clared insoluble ten years previously. Unfortunately he did 
not betray to us the secret of the way in which the owners 
of the '^ unproductive capital " obtain the power to extort 
from those industrials their extra-profit exceeding the aver- 
age rate of profit and to keep it in their own pockets in the 
same way in which the land owner pockets the surplus-profit 
of the capitalist farmer as ground rent. For according to 
this the commercial capitalists would be levying upon the 
industrials a tribute analogous to ground rent and thereby 
bring about an equalization of the rate of profit. I^ow, tbe 
commercial capital is indeed a very essential factor in the 
equalization of the rate of profit, as nearly everybody knows. 
But only a literary adventurer, who in the bottom of his 
heart cares naught for political economy, can venture the as- 
sertion that commercial capital has the magic power to absorb 
all profits above the average rate of profit, even before this 
average rate has become established^ and to convert it into 
ground-rent for itself without even requiring any real es- 
tate for this purpose. Nor is the assertion less astonishing 
that commercial capital has the gift of discovering those 
industrials, whose surplus-value just covers the average rate 
of profit, and that it considers it an honor to mitigate the 



32 Preface. 

fate of those luckless victims of the Marxian law of value by 
selling its products to them free of charge, without asking 
as much as a commission for it. What a mountebank a man 
must be in order to imagine that Marx had to have recourse 
to such miserable tricks ! 

But Mr. Loria does not shine in his full glory, until we 
compare him with his northern competitors, for instance with 
Mr. Julius Wolf, who was not born yesterday, either. What 
a small coyote Mr. Wolf seems to be, even in his big volume 
on Socialism and the Capitalist Order of Society, compared 
to that Italian ! How clumsily, I am almost tempted to say 
modestly, does he stand forth beside the noble check of the 
maestro who pretends as a matter of course that Marx is 
just such a sophist, poor logician, liar and mountebank as 
]\Ir. Loria himself, that Marx bamboozles the public with a 
promise of completing his theory in some future volume 
which he neither will nor can write, as he very well knows, 
whenever he gets into a tight place ! Unlimited nerve 
coupled to the smoothness of an eel when slipping through 
impossible situations, a heroic imperviousness to kicks re- 
ceived by him, a hasty appropriation of the accomplish- 
ments of others, an importunate charlatanry of advertising, 
an organization of fame by the help of a clique of friends — 
who can equal him in all these ? 

Italy is the land of classic lore. Since the great time 
when the morning glow of the modern world rose over it, it 
produced magnificent characters of unequalled classic per- 
fection, from Dante to Garibaldi. But the time of its deg- 
radation under the rule of strangers also bequeathed classic 
character-masks to it, among them two especially sharply 
chiseled types, that of Sganarelli and Dulcamara. The 
classic unity of both is embodied in our illustre Loria. 

In conclusion I must take my readers across the Atlantic. 



Preface. 33 

Dr. (med.) George C. Stiebeling, of Xew York, also found 
a solution of the problem, and a very simple one at that. It 
was so simple that no one on either side of the ocean cared 
to take him seriously. This aroused his ire, and he com- 
plained about this outrage in an endless number of pamphlets 
and newspaper articles, on both sides of the great water. He 
was told in the Neue Zeit that his solution was based en- 
tirely on an error in his calculation. But this did not dis- 
turb him in the least. Marx had also made many errors of 
calculation, and yet he was right. Let us, then, take a 
closer look at Dr. Stiebeling's solution. 

" Take two factories working with equal capitals for an 
equal length of time, but with different proportions of their 
constant and variable capitals. The total capital (c -|- v) 
will be regarded as equal to y, and the difference in the pro- 
portion of the constant to the variable capital equal to x. 
In the first factory, y is equal to c + v, in the second y is 
equal to (c — x) + (^ + x). The rate of surplus-value is 
therefore in the first factory equal to ^, and in the second 
factory equal to ^-t^- I designate as profit (p) the total 
surplus-value (m), by which the total capital y, or q -\- Vy 
is augmented in the given time, in other words, p is 
equal to m. Hence the rate of profit in the first fac- 
tory is equal to y; or ~, and in the second factory like- 
wise equal to -|-, or ^^_^-^'^^^^^^ , that is to say, it is also 
equal to ~. The . . . problem solves itself in such a 
way that, on the basis of the law of value, equal capitals em- 
ploying unequal quantities of living labor in equal lengths of 
time, a change in the rate of surplus-value brings about the 
equalization of an average rate of profit." (G. C. Stiebe- 
ling, The Law of Value and the Rate of Profit, I^ew York, 
John Heinrich.) 

C 



34 Preface. 

In spite of the beautiful clearness of the above calculation, 
we cannot refrain from asking Dr. Stiebeling this question: 
How does he know that the sum of surplus-values produced 
by the first factory is exactly equal to the sum of surplus- 
values produced in the second factory? He states explicitly 
that c, V, y and x, that is to say, all the other factors in the 
calculation, are equal in both factories, but not a word about 
m. It follows by no means that these two quantities of sur- 
plus-value are equal simply because he designates them both 
by m. On the contrary, this is precisely what must be 
proved, especially since Dr. Stiebeling also identifies the 
profit p without further ceremony with the surplus-value m. 
Xow, only two possibilities present themselves. Either the 
m's are equal, both factories produce equal quantities of sur- 
plus-value, and therefore, since both capitals are equal, also 
equal quantities of profit. If so, then Dr. Stiebeling has 
taken for granted at the outset what he was called upon to 
prove. Or, one factory produces more surplus-value than the 
other, and in that case his entire calculation falls to the 
ground. 

Mr. Stiebeling spared neither pains nor money in building 
upon this erroneous calculation of his mountains of other 
calculations and exhibiting them to the public. I can assure 
him, for his own peace of mind, that nearly all of his calcula- 
tions are equally wrong, and whenever they are not, they 
prove something entirely different from what he set out to 
prove. He proves, for instance, by a comparison of the 
U. S. census figures for 1870 and 1880 that the rate of profit 
has actually fallen, but explains this fact wrongly, assuming 
that he has to correct Marx for working his theory with a 
never changing, stable, rate of profit. But the third part of 
the third volume of Capital shows that this '' stable rate of 
profit " in Marxian economics is purely a figment of Dr. 



Preface. 35 

Stiebeling's brain, and that the falling rate of profit is due 
to causes which are just the reverse of those indicated by Dr. 
Stiebeling. ISTo doubt Dr. Stiebeling has the best intentions, 
but a man who undertakes to discuss scientific questions 
should learn above all to read the works of the author, whom 
he wishes to study, just as they have been written, and espe- 
cially not to find anything in them which they do not contain. 
The outcome of the entire investigation, also in this ques- 
tion, shows once more that the Marxian school is the only 
one which has accomplished something in this line. When 
Fireman and Konrad Schmidt read this third volume, they 
will have good reasons for being well satisfied with the work 
done by each of them. 

Fredeeick Engels. 
London, October 4, 1894. 



VOLUME III. 

THE PROCESS OF CAPITALIST 
PRODUCTION AS A WHOLE. 



PART I. 

THE CONVEESIOJ^ OF SURPLUS-VALUE INTO 
PROFIT AND OF THE RATE OF SURPLUS- 
VALUE INTO THE RATE OF PROFIT. 



CHAPTER L 



COST PRICE AND PEOFIT. 



IN the first volume we analyzed the phenomena presented 
hj the process of capUalist production., considered by 
itself as a mere productive process without regard to any sec- 
ondary influences of conditions outside of it. But this process 
of production, in the strict meaning of the term, does not ex- 
haust the life circle of capital. It is supplemented in the 
actual world by the process of circulation, which was the 
object of our analysis in the second volume. We found in 
the course of this last-named analysis, especially in part III, 
in which we studied the intervention of the process of circu- 
lation in the process of social reproduction, that the capitalist 
process of production, considered as a whole, is a combination 
of the processes of production and circulation. It cannot be the 
object of this third volume to indulge in general reflections 
relative to this combination. We are rather interested in lo 

37 



38 Capitalist Production. 

eating the concrete forms growing out of the movements of 
capitalist production as a whole and setting them forth. In 
actual reality the capitals move and meet in such concrete 
forms that the form of the capital in the process of production 
and that of the capital in the process of circulation impress 
one onlv as special aspects of those concrete forms. The 
conformations of the capitals evolved in this third volume 
approach step by step that form which they assume on the 
surface of society, in their mutual interactions, in competi- 
tion, and in the ordinary consciousness of the human agencies 
in this process. 



The value of every commodity produced by capitalist 
methods is represented by the formula : C = c -}- ^ + s. 
If we subtract the surplus-value s from this value of the 
product, there remains only an equivalent for the value of the 
capital c + V expended for the elements used in the produc- 
tion of this commodity. 

Take it that the production of a certain article requires 
the expenditure of a capital of 500 p.st., of which 20 p.st. 
are consumed by the wear and tear of instruments of produc- 
tion, 380 p.st. spent for materials of production, and 100 
p.st, for labor-power. And let the rate of surplus-value be 
100%. In that case the value of this product is equal to 
400 c + 100 V + 100 s, or 600 p,st. 

After deducting the surplus-value of 100 p.st., we have a 
remaining commodity-capital of 500 p.st,, which is only an ' 
equivalent for the consumed capital of 500 p.st. This por- 
tion of the value of the commodity, which makes good the 
price of the consumed means of production and the price of 
the employed labor-power, replaces only the amount paid by the 
capitalist himself for this commodity and represents, there- 
fore, from his point of view the cost price of this commodity. 

However, the cost of this commodity to the capitalist, and 
the actual cost of this commodity, are two vastly different 
amounts. That portion of the value of the commodity which 
consists of surplus-value does not cost the capitalist anything 
for the reason that it costs the laborer unpaid labor. But on 



Cost Price and Profit. 39 

the basis of capitalist production, the laborer plays the role of 
an ingredient of productive capital as soon as he has been in- 
corporated in the process of production. Under these cir- 
cumstances the capitalist poses as the actual producer of the 
commodity. For this reason the cost price of the commodity 
to the capitalist necessarily appears to him as the actual cost 
of the commodity. If we designate the cost-price by k, we 
can transcribe the formula C ^ c + v + s into the formula 
C = k -|" s, that is to say, the value of a commodity is equal 
to the cost price plus the surplus-value. 

In this way the classification of the various values making 
good the value of the capital consumed in the production of 
the commodity under the term of cost price expresses, on the 
one hand, the specific character of capitalist production. The 
capitalist cost of the commodity is measured by the expendi- 
ture of capital, while the actual cost of the commodity is 
measured by the expenditure of labor. The capitalist cost- 
price of the commodity, then, is a quantity difiPerent from its 
value, or its actual cost-price. It is smaller than the value 
of the commodity. For since C = k -j- s, it is evident that 
k = C — s. On the other hand, the cost-price of a commod- 
ity is by no means a mere heading in capitalist bookkeeping. 
The actual existence of this portion of value continually exerts 
its practical influence in the actual production of the commod- 
ity, because it must be ever reconverted from its commodity- 
form, by way of the process of circulation, into the form of 
productive capital, so that the cost-price of the commodity 
must always buy anew tte elements of production consumed 
in its creation. 

However, the cost-price as a heading in bookkeeping has 
nothing to do with the formation of the value of a commodity, 
or with the process of self-expansion of capital. When I 
know that five-sixths of the value of a commodity worth 600 
p.st, or 500 p.st., represent but an equivalent for the capital 
consumed in its production and suffice only for the purchase 
of new material elements of the same capital, I know nothing as 
yet of the way in which these five-sixths representing the cost- 
price of the commodity are produced, nor do I know anything 



40 Capitalist Production. 

about the production of the last sixth which constitutes its 
surplus-value. K^evertheless we shall see in the course of our 
analysis that the cost-price plays in capitalist economics the 
false role of a category in the actual production of values. 

Let us return to our example. Take it that the value pro- 
duced by one laborer in an average social working day is rep- 
resented by 6 shillings in money. In that case the advanced 
capital of 500 p.st. consisting of 400 c -|- 100 v represents the 
values produced in 1666f working days, of ten hours each. 
Of this amount 1333^ working days are crystallized in the 
value of the means of production amounting to 400 p.st. 
(400 c), and 333^ working days are crystallized in the value 
of labor-power amounting to 100 p.st. (100 v). Having as- 
sumed a rate of surplus-value of 100%, the production of the 
new commodity costs an expenditure of labor-power amount- 
ing to 100 V -|- 100 s, or 6665 working days of ten hours each. 

We know^ then, as shown in volume I, chapter VII, that 
the value of the newly created product of 600 p.st. is com- 
posed, 1), of the reappearing value of the constant capital 
of 400 p.st. expended for means of production, and 2), of a 
newly produced value of 200 p.st. The cost-price of the 
commodity, or 500 p.st., comprises the reappearing 400 c and 
one-half of the newly produced value of 200 p.st., that is to 
say 100 V. In other words, it comprises two elements of the 
value of the commodity which are of widely different origin. 

Owing to the appropriate character of the labor expended 
during 666f working days of ten hours each, the value of the 
means of production consumed in this process, to the amount 
of 400 p.st., is transferred to the product. This previously 
existing value thus reappears as an element of the value of 
the product, but is not created in the process of production of 
this commodity. It exists as an element of the value of this 
commodity only for the reason that it previously existed as an 
element of the invested capital. The expended constant cap- 
ital, then, is replaced by that portion of the value of the com- 
modity which this capital transfers to the commodity of its 
own accord in the labor-process. This element of the cost- 
price, therefore, has an ambiguous meaning. On the one 



Cost Price and Profit. 41 

hand it passes into the cost-price of the commodity, because 
it is an element of that portion of the value of the commodity 
•which replaces consumed capital. And on the other hand it 
forms an element of the value of the commodity only for the 
reason that it is the value of consumed capital, or because the 
means of production cost a certain sum. 

It is different witb the other element of the cost-price. 
The 666f working days expended in the production of the 
commodity create a new value of 200 p.st. One portion of 
this new value replaces only the advanced variable capital 
of 100 p.st., which is the price of the labor-power employed. 
But this advanced capital-value does not participate in the 
creation of the new value. So far as the advance of capital 
is concerned, labor-power counts as a value. But in the 
process of production, labor-power performs the function of 
creating value. The place of the mere value of labor-power 
in the advance of capital is taken in the actual process of pro- 
ductive capital by living labor-power which creates value. 

This difference of the various elements of the value of a 
commodity which constitute the cost-price becomes evident 
whenever a change takes place either in the amount of the 
value of the expended constant capital or in that of the ex- 
pended variable capital. For instance, let the price of the 
same means of production, or of the constant portion of capi- 
tal, rise from 400 p.st. to 600 p.st., or fall to 200 p.st. In the 
first case it is not only the cost-price of the commodity which 
rises from 500 p.st. to 600 c + 100 v, or 700 p.st., but also 
the value of the commodity which rises from 600 p.st. to 
600 c + 100 V + 100 s, or 800 p.st. In the second case, it is 
not only the cost-price which falls from 500 p.st. to 200 c -\- 
100 V, or 300 p.st., but also the value of the commodity which 
falls from 600 p.st. to 200 c + 100 v -f 100 s, or 400 p.st. 
Because the expended constant capital transfers its own value 
to the product, therefore the value of the product rises or falls 
with the absolute magnitude of that capital-value, other cir- 
cumstances remaining the same. But on the other hand let 
us assume that, other circumstances remaining the same, the 
price of the same amount of labor-power rises from 100 p.st. 



42 Capitalist Production. 

to 150 p.st, or falls from 100 p.st to 50 p.st. In the first case, 
the cost-price rises indeed from 500 p.st. to 400 c -|- 150 v, or 
550 p.st., and in the second case it falls from 500 p.st. to 
400 c + 50 V, or 450 p.st. But in either case, the value of 
the commodity remains unchanged at 600 p.st. In the first 
case it is 400 c + 1^0 v -f 50 s, in the second 400 c + 50 v 
+ 150 s, but in either case it is 600 p.st. The advanced vari- 
able capital does not transfer its own value to the product. 
The place of its value is taken in the product by a new value 
created by labor. Therefore a change in the value of the 
absolute magnitude of the variable capital, to the extent that 
it expresses merely a change in the price of labor-power, does 
not alter the absolute magnitude of the value of the commod- 
ity in the least, because it does not alter anything in the 
absolute magnitude of the new value created by living labor. 
Such a change influences only the relative proportion of the 
magnitudes of the two elements of the new value, one of 
which forms surplus-value, and the other of which makes 
good the variable capital and passes into the cost-price of the 
commodity. 

The two elements of the cost-price, in the present case 
400 c -|- 100 V, have only this in common that they are both 
of them elements of the value of the commodity replacing ad- 
vanced capital. 

But this actual condition of things must necessarily look 
reversed from the point of view of capitalist production. 

The capitalist mode of production is distinguished from 
a mode of production based on slavery by this fact among 
others that in the former the value, or the price, as the case 
may be, of labor-power assumes the form of the value, or 
price, of labor itself, that is to say, the form of wages. 
(Volume I, chapter XIX.) The variable portion of the 
advanced capital, therefore, presents itself as a capital ad- 
vanced in ^vages, as a capital-value paying for the value, 
or price, of all labor expended in production. Take it, for 
instance, that an average social working day of ten hours 
is represented by 6 shillings of money. In that case the 
advance of a variable capital of 100 p.st. expresses in money 



Cost Price and Profit. 43 

the value of a product created in 333^ ten-hour days. But 
this vahie, being an element of the advance of capital for the 
purchase of labor-power, is not an element of the productive 
capital in the actual performance of its function. Its place 
in the process of production is taken by living labor-power. 
If the degree of exploitation of this labor-power is 100%, 
as it is in our illustration, then it is expended during 666f 
ten-hour days, and thereby adds to the product a new value 
of 200 p.st. On the other hand, the variable capital of 100 
p.st. figures in the advance of capital as a capital invested 
in wages, or as the price of labor performed in 666f ten- 
hour days. Dividing 100 p.st. by 666f, we obtain 3 shil- 
lings as the price of a working day of ten hours, equal in 
value to the product of five hours' labor. 

Now, if we compare the advance of capital on one side 
with the value of commodities on the other, we find the 
following condition of things : 

I. Capital advanced 500 p.st., consisting of 400 p.st. of 
capital expended in means of production (price of means of 
production) plus 100 p.st. of capital expended in wages 
(price of 666f working days, or wages for the same). 

II. Value of commodities 600 p.st. of which 500 p.st. repre- 
sent the cost-price (400 p.st. price of expended means of pro- 
duction plus 100 p.st. price of expended 666f working days) 
plus 100 p.st. surplus-value. 

In this formula, the portion of capital invested in labor- 
power differs from that invested in means of production 
(such as cotton or coal) only by serving for the payment of 
a substantially different element of production. But it does 
not differ by serving in a different function in the process of 
creating the value of the commodities, and thereby in the 
process of self-expansion of capital. The price of the means 
of production reappears in the cost-price of the commodities, 
just as it figured in the advance of capital, and it does so for 
the reason that the means of production have been appropri- 
ately consumed. The cost-price of the commodities also con- 
tains the price, or wages, for the 66 6f working days con- 
sumed in the production of these commodities, which wages 



44 Capitalist Production. 

figvuvi'l ako in the advance of capital, likewise for the reason 
that thus jimonnt of labor has been appropriately expended. 
We cee only finished and existing values, representing por- 
tions of the value of advanced capital which have passed into 
the value of the product, but no element representing newly 
created values. The distinction between constant and vari- 
able capital has disappeared. The entire cost-price of 500 
p.st. now has the ambiguous meaning that it is that portion 
of the value of commodities worth 600 p.st. which makes good 
the capital of 500 p.st. expended in the production of these 
commodities, and that it owes its existence as a portion of the 
value of these commodities only to the fact of having pre- 
viously existed as the cost-price of the consumed elements of 
production, nan^ply means of production and labor, in other 
words, of having existed as an advance of capital. The capi- 
tal-value reappears as the cost-price of commodities, because 
it had been expended as a capital-value. 

The fact that the various elements of the value of the ad- 
vanced capital have been expended for substantially different 
elements of production, namely for instruments of labor, raw 
materials, auxiliary substances, and labor, requires only that 
the cost-price of the commodities should buy a new supply of 
these substantially different elements of production. So far 
as the formation of this cost-price is concerjied, only one dis- 
tinction is appreciable, namely that between fixed and circu- 
lating capital. In our example we had set down 20 p.st. for 
wear and tear of instruments of labor (400 c being composed of 
20 p.st. for wear and tear of instruments of labor and 380 p.st. 
for materials of production). Supposing the value of those in- 
struments of labor to have been 1200 p.st. before the productive 
process began, it wall exist after the production of the com- 
modities in two forms, one of them being represented by 20 
p.st. of the value of the commodities, and the other by 1200 
— 20, or 1180 p.st, the remaining value of the instruments 
of labor in the possession of the capitalist, in other words, 
an element of his productive, not of his commodity-capital. 
On the other hand, the materials of production and wages, 
differ from the instruments of labor by being entirely con- 



Cost Price and Profit. 45 

sumed in the production of the commodities and transferring 
their entire value to that of the produced commodities. We 
have seen that the turn-over bestows upon these different ele- 
ments of the advanced capital the forms of fixed and circulat- 
ing capital. 

The advance of capital, according to this, is 1680 p.st., con- 
sisting of 1200 p.st. of fixed capital plus 480 p.st. of circulat- 
ing capital (380 p.st. of which are materials of production 
and 100 p.st. of which are wages). 

But the cost-price of the commodities is only 500 p.st., 
namely 20 p.st. for the wear and tear of the fixed capital, and 
480 p.st. for circulating capital. 

This difference between the cost-price of the commodities 
and the advance of capital merely proves that ihe cost-price 
of the commodities is formed exclusively, by the capital ac- 
tually consumed in their production. 

In the production of the commodities, instruments of pro- 
duction valued at 1200 p.st. are employed, but only 20 p.st. 
of this advanced capital are consumed in production. The 
employed fixed capital, then, passes only partially into the 
cost-price of commodities, because it is consumed only by de- 
grees in their production. The employed circulating capital 
passes entirely into the cost-price of commodities, because it 
is entirely consumed in production. But what else does this 
prove than that the consumed portions of fixed and circulating 
capital, in the ratio of the magnitude of their values, pass 
uniformly into the cost-price of the commodities, and that 
this portion of the value of commodities originates solely with 
the capital consumed in their production ? If this were not 
the case, it would be inexplicable wdiy the advanced fixed cap- 
ital of 1200 p.st. should not add, aside from the 20 p.st. which 
it loses in the productive process, also the other 1180 p.st. 
which it does not lose therein. 

This difference between fixed and circulating capital with 
reference to the calculation of the cost-price affirms, we re- 
peat, the apparent origin of the cost-price in the expended 
capital-value, or in the price paid by the capitalist himself 
for the expended elements of production, including labor. 



46 Capitalist Production. 

On the other hand, the variable portion of capital invested 
in labor-power is explicitly identified, under the head of cir- 
culating capital, with that portion of the constant capital 
which consists of materials of production, so far as the forma- 
tion of value is concerned. And by this means the mystifica- 
tion of the process of self-expansion of capital ia accom- 
plished.^ 

Hitherto we have considered only one element of the value 
of commodities, namely the cost-price. We must now occupy 
ourselves also with the other element of the value of commod- 
ities, namely the excess over the cost-price, or the surplus- 
value. In the first place, then, surplus-value is an excess of 
the value of a commodity over its cost-price. But since the 
cost-price is equal to the value of the consumed capital, into 
whose substantial elements it is continually reconverted, the 
additional value is an accretion to the capital expended in the 
production of the commodities and returning by way of the 
circulation. 

We have seen previously that the surplus-value s owes its 
origin in point of fact to a change in the value of the vari- 
able capital V and is, therefore, really but an increment of 
variable capital. N'evertheless it is also an increment of the 
expended total capital c -f v after the process of production 
has been completed. The formula c -f- (v + s), which in- 
dicates that s is produced by the conversion of a definite cap- 
ital-value V, a constant magnitude, into a fluctuating magni- 
tude by means of the labor-power paid by it, may also be 
represented as (c + v) -}- s. Before production began, we 
had a capital of 500 p.st. After production is completed, 
we have the same capital of 500 p.st. plus an increment of 
value amounting to 100 p.st.^ 

1 In volume I, chapter IX, 3, we have shown by the example of N. W. Senior 
what confusion this may create in the head of the economist. 

= " 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 trans- 
formed into labor-power; consequently, v + s equals 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 
of the variable component of the capital there is also an increase in the sum 
total of the advanced capital. It was originally 500 p.st. and becomes 590 p.st." 
(Volume I, chapter IX, 1.) 



Cost Price and Profit. 47 

However, the surplus-value is an increment, not only of 
that jjortion of the advanced capital which is assimilated by 
the process of production, but also of that portion which is 
not assimilated. In other words, it is an^accretion, not only 
to the consumed capital which is made good by the cost-price 
of commodities, but also to the aggregate capital invested in 
production. Before the beginning of the production we had 
a capital valued at 1680 p.st., namely 1200 p.st. of fixed capi- 
tal invested in instruments of production, only 20 p.st. of which 
are assimilated in the process by the commodities through 
wear and tear, plus 480 p.st. of circulating capital invested in 
materials of production and wages. At the close of the proc- 
ess of production we have 1180 p.st. remaining of the value 
of the productive capital plus a commodity-capital of 600 p.st. 
By adding these two amounts, we find that the capitalist now 
has values amounting to 1780 p.st. After deducting his in- 
vested total capital of 1680 p.st., the capitalist pockets a sur- 
plus of 100 p.st. In short, the 100 p.st. of surplus-value 
form as much an increment of the invested 1680 p.st. as of 
the 500 p.st., or that part of it which was assimilated by the 
production. 

The capitalist understands well enough that this increment 
of value has its genesis in the productive manipulations of 
capital, that it is generated out of the capital. For this in- 
crement exists at the close of the productive process, while it 
did not exist at its beginning. So far as the capital assimi- 
lated in production is concerned, the surplus-value seems to 
arise equally from all its different elements consisting of 
means of production and labor. For all these elements con- 
tribute equally to the formation of the cost-price. All of 
them add their values, which are advanced as capital, to the 
value of the product, and they are not distinguished as con- 
stant and variable magnitudes. This becomes obvious, when 
we assume for a moment that all assimilated capital consisted 
either of wages exclusively, or of the values of means of pro- 
duction alone. In the first case, we should then have in 
place of the commodity-values 400 c -|-100 v -|- 100 s the 
commodity-values 500 v + 100 s. The capital of 500, in- 



48 Capitalist Production. 

vested in wages, represents the value of all labor assimilated 
in the production of the commodity-value of 600 p. St., and 
therefore it constitutes the cost-price of this entire product. 
But the way in wlj^ch this cost-price is formed, and in which 
the value of the expended capital is reproduced as a portion 
of the value of the product, is the only process in the forma- 
tion of the value of this product known to us. We do not 
know anything of the way in which its surplus-portion of 
100 p.st. is formed. It is the same in the second case, in 
which the value of the commodities would be equal to 500 c 
-f- 100 s. We know in either case that the surplus-value 
arises from a given value, because this value was advanced in 
the form of productive capital, no matter whether in the form 
of labor or of means of production. On the other hand, this 
advanced capital-value cannot form any surplus-value for the 
sole reason that it has been expended and constitutes the cost- 
price of the commodities. For the fact that it forms the 
cost-price of the commodities accounts precisely for the cir- 
cumstance that it constitutes no surplus-value, but merely an 
equivalent replacing the expended capital. To the extent 
that it forms surplus-value it does so not in its specific ca- 
pacity of expended, but of advanced and invested capita^. 
In short, the surplus-value arises as much out of that portion 
of the advanced capital which makes good the cost-price of 
the commodities as out of that portion which is not made up 
by the cost-price. In other words, it arises equally out of 
the fixed and circulating components of the invested capital. 
The total capital serves substantially as the creator of values, 
the instruments of labor as well as the materials of production 
and labor. The total capital passes substantially into the ac- 
tual labor-process, even though only a portion of it is assim- 
ilated by the process of self-expansion. This is, perhaps, the 
very reason why it contributes only in part to the formation 
of the cost-price, but totally to the formation of the surplus- 
value. However that may be, the outcome is that surplus- 
value arises simultaneously from all portions of the invested 
capital. This deduction may be materially abbreviated, I)y 
saying pointedly and briefly in the words of Malthus : " The 



Cost Price and Profit. 49 

capitalist expects equal returns on all parts of the capital ad- 
vanced by him." ^ 

In its alleged capacity of an offspring of the advanced 
total capital, the surplus-value assumes the change of form 
known as profit. Hence a certain value is capital when it 
is advanced with a view to generating profit,^ or profit re- 
sults from the investment of a value as capital. If we desig- 
nate profit by p, we may convert the formula C = c + v + 
s, or k 4- s, into the formula C = k + p, in other words, 
tie value of a commodity is equal to the cost-price plus the 
profit. 

The profit, such as it presents itself here, is the same as 
the surplus-value, only it has a mystified form, which is a 
necessary outgrowth of capitalist modes of production. The 
genesis of the mutation of values must be transferred from the 
variable portion of capital to the total capital, because no dis- 
tinction is noticeable between the constant and variable capi- 
tal in the assumed formation of the cost-price. Because the 
price of labor-power assumes on one pole the form of wages, 
surplus-value appears at the other pole in the form of profit 

We have seen that the cost-price of a commodity is smaller 
than its value. Since C equals k + s, it follows that k equals 
C — s. The formula C = k + s reduces itself to C = k, 
or commodity-value equal to cost-price, only when s is zero, a 
case which never occurs on the basis of capitalist production, 
although peculiar market combinations may reduce the sell- 
ing price of commodities to the level of their cost-price, or 
even below it. 

Hence, if a commodity is sold at its value, a profit is real- 
ized, which is equal to the excess of its value over its cost- 
price, or equal to the entire surplus-value incorporated in the 
value of the commodity. But the capitalist may sell a com- 
modity at a profit even when selling it below its value. For 
so long as its selling price exceeds its cost-price, even though 

'Malthus. Principles of Political Economy, second edition, London, 1836, paRes 
267, 268. ' v f, 

_ *" Capital: that which is expended with a view to profit." Malthus, Definitions 
ai Political Economy. London, 1827, page 86. 

D 



50 Capitalist Production. 

it may be below its valiie^ a portion of the surplus-value in- / 
corporated in it is ahvays realized and thus a profit made. 
The value of the commodities in our illustration is GOO p.st., 
their cost-price 500 p.st. If the commodities are sold at 510, 
520, 530, 560 or 590, p.st., they are sold respectively at 90, 80, 
70, 40, or 10 p.st. below their value, and yet a profit of 
respectively 10, 20, 30, 60, or 90 p.st. is realized by their sale. 
It is evident that selling prices may fluctuate considerably be- 
tween the value of a commodity and its cost-price. The 
greater the surplus-element of the value of commodities, the 
greater is the practical playroom of these fluctuating inter- 
mediate prices. 

This exj^lains such phenomena of daily occurrence in com- 
petition as underselling, abnormally low prices in certain 
lines of industiy, etc.^ The fundamental law of capitalist 
comj^etition, which political economy has not understood up to 
the present time, the law which regulates the general rate of 
profit and the prices of production determined by it, rests, as 
we shall see later, on this difference between the value and the 
cost-price of commodities, and on the resulting possibility to 
sell a commodity at a profit even below its value. 

The minimum limit of the selling price of commodities is 
indicated by their cost-price. If they are sold below their 
cost-price, then the consumed elements of productive capital 
cannot be fully reproduced out of the selling price. If this 
sort of thing continues, then the value of the advanced capital 
disappears. This point of view is sufficient to incline the 
capitalist toward the opinion that the cost-price is essentially 
the inmost value of commodities, because it is the price re- 
quired for the bare conservation of his capital. Further- 
more, the cost-price of a commodity is the purchase price paid 
by the capitalist himself for its production, in other words, 
the purchase price determined by the process of production 
itself. For this reason, the surplus-value realized by the 
sale of a certain commodity appears to the capitalist as an 
excess of its selling price over its value, instead of an excess 
of its value over its cost-price, so that accordingly the surplus- 

° Compare volume I, chapter XVII, I. 



i 



Cost Price (Hid Profit. 51 

value incorporated in a commodity is not realized by its sale, 
but arises out of the sale itself. We have thrown more light on 
this illusion in volume I, chapter V, under the head of " Con- 
tradictions in the General Formula of Capital." We merely 
revert at this point to that form in which it was reaffirmed by 
Torrens, among others, as an advance of political economy 
beyond Ricardo. 

" The natural price consisting of the cost of production, or 
in otl>er words, of the expenditure of capital in the production 
or manufacture of a commodity, cannot possibly include any 
profit. ... If a farmer advances 100 quarters of com 
in the cultivation of his fields, and receives in return 120 
quarters, the 20 quarters, being a surplus of the product above 
the investment, form his profit ; but it would be absurd to 
call this surplus, or profit, a part of his expenditure. 
The manufacturer advances a certain quantity of raw ma- 
terials, tools, and subsistence for labor, and receives in re- 
turn a quantity of finished products. This finished product 
must contain a greater exchange-value than the raw materials, 
tools, and means of subsistence, by whose advance it was ac- 
quired." Torrens concludes, therefore, that the excess of the 
selling price over the cost-price, or the profit, is due to the fact 
that the consumers, " by a direct or circuitous exchange yield 
a certain larger portion of all ingredients of capital than it 
cost to produce them." ^ 

In fact, the excess over a certain magnitude cannot form a 
part of this magnitude. Therefore the profit, the excess of 
the value of a commodity over the expenditure of the capi- 
talist, cannot form a part of this expenditure. Hence, if no 
other element than the advance of the capitalist enters into 
the formation of the value of a commodity, it is inexplicable 
that more value should come out of production than went into 
it, for something cannot come out of nothing. Torrens, how- 
ever, dodges this creation out of nothing only by transferring 
it from the sphere of commodity-production to that of commod- 
ity-circulation. Profit cannot come out of the production 

' R. Torrens, An Essay on the Production of Wealth. London, 1821, pages 
51-53, and 70-71. 



52 Capitalist Production. 

of commodities, says Torrens, for otherwise it would already 
be contained in the cost of production, and that would not be 
a surplus over this cost. Profit cannot come out of the ex- 
changes of commodities, replies Eamsay, unless it existed be- 
fore this exchange. The sum of their values of the ex- 
changed products is evidently not altered by their exclian2,e. 
It remains the same as before this exchange. Incidentally 
we remark at this point, that Malthus invokes expressly the 
authority of Torrens,'^ although he himself explains the sale 
of commodities above their value differently, or rather does 
not explain it, since all arguments of this sort ultimately 
amount to the same thing as the one-time famous negative 
weight of phlogiston. 

In a society ruled by capitalist production, even the non- 
capitalist producer is dominated by capitalist conceptions. 
In his last novel, Les Paysans, Balzac, who is generally re- 
markable for his profound grasp of actual conditions, aptly 
describes how the little peasant, in order to retain the good 
will of his usurer, performs many small tasks gratuitously for 
him and fancies that he does not give him anything for noth- 
ing, because his own labor does not cost him any cash outlay. 
The usurer, on the other hand, thereby kills two flies at one 
stroke. He saves a cash outlay for wages and gets the farmer 
more and more tangled in the net of the spider of usury, by 
gradually ruining him through the deviation of his labor from 
his own fields. 

The thoughtless conception that the cost-price of a commod- 
ity constitutes its actual value, and that surplus- value 
arises by selling the product above its value, so that commod- 
ities would be sold at their value, if their selling price were 
equal to their cost-price, that is to say, equal to the price of 
the means of production plus wages incorporated in them, has 
been heralded to the world as a newly discovered secret of 
socialism by Proudhon with his customary charlatanry in 
the guise of science. In fact, this reduction of the value of 
commodities to their cost-price constitutes the basis of his 
People's Bank. We have demonstrated in a preceding chap- 

' Malthus, Definitions in Political Economy. London, 1853, pages 70, 71, 



1 



Cost Price and Profit. 53 

ter that the various elements of the value of the product 
may be materialized in proportional parts of the product it- 
self. (Volume I, chapter IX, 2.) For instance, if the 
value of 20 lbs. of yarn is 30 shillings, containing 24 shil- 
lings of means of production, 3 shillings of labor-power, and 
3 shillings of surplus-value, then this surplus-value may be 
represented by -i-^oi the product, or 2 lbs. of yam. Now, 
if these 20 lbs. of yarn are sold at their cost-price, at 27 
shillings, then the purchaser receives 2 lbs. of yarn for noth- 
ing, or the article is sold -po below its value. But the laborer 
has performed the same amount of surplus-labor, only in this 
case it accrues to the benefit of the purchaser of the yarn, not 
to its capitalist producer. It would be a mistake to assume 
that if all commodities were sold at their cost-price the result 
would be the same as if they had all been sold above their 
cost-price, at their real value. For even if the value of labor- 
power, the lengtli of the working day, and the degree of ex- 
ploitation of labcr were the same everywhere, the quantities 
of surplus-value contained in the values of the various kinds 
of commodities would be unequal, according to the different 
organic composition of the capitals advanced for their pro- 
duction.* 



OHAPTEE II. 

THE. KATE OF PROFIT. 

The general formula of capital_is M — C — M'. In other 
words, a certain quantity of values is thrown into circulation 
for the purpose of drawing a larger quantity out of it. The 
process by which this largei' quantity is produced is capitalist 
production. The process by which this larger quantity is 
realized is the circulation of capital. The capitalist does 
not produce a commodity on its ow^n account, he does not 

'"The masses of value and surplus-value produced by different capitals — the 
value of labor-power being given and its decree of exploitation being equal — vary- 
directly as the amounts of the variable consrituents of these capitals, i.e., as their 
constituents transformed into living labor-power." (Volume I, Chapter IX.) 



54 Capitalist Production. 

care for its use-value, nor does he consume it personally. The 
product in which the capitalist is really interested is not 
the tangible product itself, but the excess of the value of the 
product over the value of the capital assimilated by it. The 
capitalist advances the total capital without regard to the 
different roles played by its components in the production of 
surplus-value. He advances all these components uniformly, 
not merely for the purpose of reproducing the advanced capi- 
tal, but rather with a view to producing a surplus-value in 
excess of it. He cannot convert the value of the variable 
capital advanced by him into a greater value except by its ex- 
change for living labor and by the exploitation of this labor. 
But he cannot exploit this labor unless he advances at the 
same time the material requirements for the incorporation of 
this labor, namely instruments and materials . of labor, ma- 
chinery and raw materials. This he can do only by convert- 
ing a certain amount of value in his possession into require- 
ments of production. He could not be a capitalist at all, nor 
undertake to exploit labor, unless he enjoyed the privilege of 
owning the material requirements of production and finding 
at hand a laborer who owns nothing but his labor-power. 
We have already shown in the first volume that it is precisely 
the ownership of means of production by idlers which con- 
verts laborers into wage-workers and idlers into capitalists. 

It is immaterial for the capitalist whether he is supposed 
to advance constant capital in order to make a profit out of 
his variable capital, or whether he advances variable capital 
in order to make a profit out of the constant capital ; whether 
he invests money in wages in order to make his machinery 
and raw materials more valuable, or whether he invests money 
in machinery and raw materials in order to be 3ble to exploit 
4abor. .Although it is only the variable portion of capital 
which creates surplus-value, it does so only on condition that 
the other portions, the material requirements of production, 
are likewise advanced. Seeing that the capitalist can ex- 
ploit labor only by advancing constant capital, and that he 
can utilize his constant capital only by advancing variable 



The Rate of Profit. 55 

capital, he lumps them all together in his imagination, and 
he is all the more apt to do so as the actual rate of his gain 
is not calculated on its proportion to the variable, but on its 
proportion to the total capital, in other words, that it is cal- 
culated on the rate of profit, not on the rate of surplus-value. 
And we shall see that the rate of profit may remain unchanged 
and yet may express different rates of surplus-value. 

The cost of the product includes all those elements of its 
value which the capitalist has paid, or for which he has 
thrown an equivalent into circulation. This cost must be 
made good in order that the capital may merely be pre- 
served, or reproduced in its original magnitude. 

.^The value contained in a certain commodity is equal to the 
labor-time required for its production, and the sum of this 
labor consists of paid and unpaid portions. But the expenses 
of the capitalist consist only of that portion of materialized 
^labor which he paid for the production of the commodity. 
The surplus-value contained in this commodity does not cost 
the capitalist anything, while it cost the laborer his labor 
just as well as that portion for which he is paid, and although 
it creates value and is embodied in the value of the commod- 
ity quite as well as the paid labor. The profit of the capi- 
talist is due to the fact that he offers something for sale for 
which he has not paid anything. The surplus-value, or the 
profit, consists precisely of the excess of the value of the 
commodity over its cost-price, in other words, it consists of 
the excess of the total amount of labor embodied in the com- 
modity over the paid labor contained in it. The surplus- 
value, whatever be its genesis, is a-surplua above the ad- 
vanced total capital. The -proportion of this surplus to the 
total capital is expressed by the fraction -^, in which C 
stands for the total capital. Thus we obtain the rate of 
profit -^ = ^ , as distinguished from the rate of surplus- 
value -y-. 

The rate of surplus-value measured by the variable capital 
is called rate of surplus-value. The rate of surplus-value 
measured by tlie total capital is called ra^te of profit. These 



56 Capitalist Production. 

two modes of measuring the same magnitude express different 
conditions or relations of this magnitude, owing to the ditfer- 
ence of the two standards of measurement. 

The transformation of surplus-value into profit must be 
deduced from the transformation of the rate of surplus-value 
into the rate of profit, not vice versa. And the rate of profit 
is indeed that from which historical research takes its de- 
parture. The surplus-value and the rate of surplus-value 
are, relatively, the invisible and unknown essence, while the 
rate of profit and the resulting appearance of surplus-value in 
the form of profit are phenomena which show themselves on 
the surface. 

So far as the individual capitalist is concerned, it is evi- 
dent that the only thing which interests him is the relation of 
sui'plus-value, of the excess of value at which he sells his 
articles, to the total Capital advanced for the production of 
-commodities. On ^the other hand, the definite relation of 
this surplus, and its internal connection, with the various 
components of capital does not interest him, for it is rather 
to his interest to indulge in vagaie notions relative to this 
definite relation and this internal connection. 

Although the excess in the value of a commodity over its 
cost-price is created in the process of production, strictly so 
called, it is realized in the process of circulation. And it 
assumes so much more easily the semblance of arising from 
the process of circulation, as it depends in reality on the mar- 
ket conditions under competition whether any surplus is real- 
ized or not, or how much of it. It is not necessary to lose 
any words at this point about the fact that it is merely a 
different way of dividing the surplus-value, when a commod- 
ity is sold above or below its value, and that this different 
division, this change of proportions in which different per- 
sons share in the surplus-value, does not alter in the least the 
magnitude or the nature of that value. It is not alone the 
metamorphoses discussed by us in volume II which take place 
in the process of circulation, but they are accompanied by 
actual competition, the sale and purchase of commodities 
above or below their value, so that the surplus-value realized 



The Rate of Profit. 57 

by the individual capitalist depends as much on the outcome 
of the mutual endeavor to outwit one another as on the direct 
exploitation of labor. 

Aside from the working time, the time of circulation exerts 
its influence in the process of circulation and limits the 
amount of surplus-value realizable Avithin a certain period. 
Still other elements arise in the process of circulation and in- 
fluence the strict process of production. Both the strict 
process of production and the process of circulation continu- 
ally intermingle, interpenetrate one another, and thereby in- 
cessantly falsify their characteristic marks of distinction. 
The production of surplus-value, and of value in general, re- 
ceives new directions in the process of circulation, as we have 
previously shown. .Capital passes through the cycle of its 
metamorphoses. Finally it steps, so to say, forth out of the 
internal organism of its life and enters into external condi- 
tions of existence, into conditions in which the opposites are 
not capital and labor, but capital and capital in one case, and 
individual buyers and sellers in another. The time of cir- 
culation and the working time cross one another's paths and 
seem to determine equally the amount of surplus-value. The 
original form in which capital and wage-labor meet one an- 
other is disguised by the interference of conditions which 
seem to be independent of them. , The surplus-value itself 
does not appear to be the result of the appropriation of labor- 
time, but an excess of the selling price of commodities over 
their cost-price, so that this last named price is easily re- 
garded as their intrinsic value, "\yhile profit appears as an 
excess of the selling price of commodities over their immanent 
value. 

It is true, that the nature of the surplus-value imprc'^ses 
itself incessantly upon the consciousness of the capitalist dur- 
ing the process of production. This is shown, among other 
indications, by his greed for the labor-time of others, to which 
we called attention in the analysis of surplus-value. But in 
the first place, the strict process of production is but a fleeting 
stage passing continually into the process of circulation, just 
as this does into it, so that the more or less vague inkling of 



58 Capitalist Production. 

the source of the gains made in the process of production, the 
source of the surplus-value, stands at best on the same ground 
with the idea that the realized surplus is due to a movement 
of capital in the process of circulation and independent of the 
process of production, a movement of capital independent of 
its relation to labor. These phenomena of circulation are 
quoted bj modern economists like Eamsay, Malthus, Senior, 
Torrens, etc., as direct proofs of the alleged fact that capital, 
in its mere material existence, independent of any social re- 
lation to labor which makes capital of it, may be a source of 
surplus-value quite as well as labor itself and without its 
help. In the second place, under the head of expenses, among j 
which wages are classed the same as the price of raw mate- 
rials, wear and tear of machinery, etc., the appropriation of 
unpaid labor figures only as a saving in the payment of an 
article added to the expense, only as a smaller payment for a 
certain quantity of. labor. A saving is recorded in the same 
way, whenever raw materials are bought more cheaply, or the 
wear and tear of machinery decreases. In this way the ap- 
propriation of surplus-labor loses its specific character^__ Its 
characteristic relation to the surplus-value is obscured. And 
this is greatly facilitated, as shown in volume I, part VI, by 
the representation of the value of labor-power in the form of 
wages. 

By posing equally as sources of an excess of value (profit), 
all elements of capital mystify the nature of the capitalist 

-relation- 

The way in which surplus-value is transformed into profit 
via the rate of profit is but a continued development of the 
perversion of subject and object taking place in the process 
of production. We have already seen that all subjective 
forces of labor in that process appeared as productive forces 
of capital. On the one hand, the value of past labor, which 
dominates living labor, is incarnated in the capitalist. On 
the other hand the laborer appears as materialized labor- 
power, as a commodity. This perverted relationshij^ neces- 
sarily produces even under simple conditions of production 
certain correspondingly perverted conceptions, which repre- 



The Rate of Profit. 59 

sent a transposition in consciousness, that is further devel- 
oped by the transformations and modifications of the circula- 
tion process proper. 

We can see by the example of the Ricardian school that it 
is a mistake to attempt a development of the laws of the rate 
of profit directly out of the laws of the rate of surplus-value, 
or vice versa. In the head of the capitalist they are nat- 
urally not distinguished. In the formula -^ the surplus- 
value is measured by tlie value of the total capital advanced 
for its production and partly consumed in it, partly merely 
invested in it. Indeed, the formula -g- expresses the de- 
gree of self-expansion of the total capital advanced, or, to 
state it in conformity with the conception of the internal or- 
ganic connection and nature of surplus-value, it indicates the 
proportion of the variation of the variable capital to the mag- 
nitude of the advanced total ca]3ital. 

The magnitude of the value of the total capital has no di- 
rect internal relation to the magnitude of the surplus-value. 
So far as its material elements are concerned, the total minus 
the variable capital, in other words, the constant capital, con- 
sists of the material ingredients, the instruments and mate- 
rials of production, required for the materialization of labor. 
In order that a certain quantity of labor may be incorporated 
in commodities and thereby produce value, a certain quantity 
of instruments and materials of production is required. Ac- 
cording to the peculiar character of the incorporated labor, a 
definite technical relation is established between the quantity 
of labor and the quantity of means of production in which 
this labor is to be incorporated. To that extent there is also a 
definite relation between the quantity of surplus-value, or 
surplus-labor, and the quantity of means of production. For 
instance, if the necessary labor for the production of wages 
amounts to 6 hours daily, then the laborer must work 12 
hours in order to perform 6 hours of surplus-labor, or pro- 
duces a surplus-value of 100%. He uses up twice as many 
means of production in 12 hours as he does, in 6. But never- 
theless the surplus-value incorporated by him in 6 hours is 
not directly related to the value of the means of production 



6o Capitalist Production. 

used up in those 6, or in those 12 hours. This value is here 
immateriah It is only the technically required mass which 
is important. It does not matter whether the raw materials 
or instruments of lahor are cheap or dear, so long as they have 
the required use-value and are available in quantities propor- 
tioned to the technical demands of the labor to be incor- 
porated in them. Now, if I know that x lbs. of cotton are 
consumed by one hour's spinning and cost a shillings, then I 
also know that 12 hours' spinning will consume 12 a; lbs. of 
cotton costing 12 a shillings. And in that case I can calcu- 
late the proportion of the surplus-value to the value of the 12 
as well as to that of the 6. But the relation of the living 
labor to the value of the means of production enters here only 
to the extent that a shillings serve as a name for a> lbs. of 
cotton. For a definite quantity of cotton has a definite price, 
and therefore a definite price may also serve as an index to 
a definite quantity of cotton, so long as the price of cotton is 
not changed. If I know that I must let the laborer work 
for 12 hours, in order to appropriate for my own C hours of 
surplus-labor, and if I know the price of this quantity of cot- 
ton needed for 12 hours, then I have a circuitous means of 
determining the proportion between the price of cotton (as 
an index of the required quantity) and the surplus-value. 
But on the other hand, I can never make any conclusions from, 
the price of the raw material as to the quantity that may be 
consumed by one hour's spinning, but not by 6 hours'. There 
is, then, no necessary internal connection between the value' 
of the constant ca23ital, nor the value of the total capital 
c -{- V, and the surplus-value. 

If the rate of surplus-value is known and its magnitude! 
given, then the rate of profit expresses nothing else but what| 
it actually is, namely a diiferent way of measuring surplus^- 
value, this being measured by the value of the total capital,, 
instead of the value of that portion of capital from which^ 
surplus-value directly originates by way of an exchange withij 
labor. But in reality, in the world of phenomena, the condi- 
tions are reversed. Surplus-value is given, but only as an 
excess of the selling price of commodities over their cost-price. 



The Rate of Proiit. 61 

And it remains a mystery where this surplus is originated, 
whether it is due to the exploitation of labor in the process 
of production, or to overcharging the purchaser in the process 
of circulation, or to both. There is also given the proportion 
of the surplus-value to the value of the total capital, or the 
rate of profit. The calculation of this excess of the selling 
price over the cost-price of commodities on the value of the 
advanced total capital is very important and natural, because 
by its means the ratio is actually determined in which the 
total capital has been expanded, the ratio of its self-expansion. 
If the rate of profit is made the point of departure, there is 
no basis on which to make any conclusions regarding the 
specific relations between the surplus and the variable capital 
invested in wages. We shall see in a subsequent chapter 
what funny somersaults Malthus made in trying to get in this 
way at the secret of the surplus-value and of its specific re- 
lation to the variable capital. What the rate of profit ac- 
tually shows is a uniform relation of the surplus to equal 
portions of the total capital, which from this point of view 
does not show any internal differences at all, unless it be that 
between fixed and circulating capital. And this difference 
is shown only because the surplus is calculated in two ways. 
In the first place it is calculated as a simple magnitude, as 
an excess of the selling price over the cost-price. In this 
form, the entire circulating capital enters into the cost-price, 
while of the fixed capital only the wear and tear enters into 
it. In the second place, the relation of this excess in value 
to the total value of the advanced capital is calculated. In. 
this case, the value of the fixed capital is taken into the cal- 
culation entirely, the same as that of the circulating capital. 
In other words, the circulating capital enters both times in 
the same way, while the fixed capital enters the first time in 
a different, the second time in the same way as the circulating 
capital. Under these circumstances, the difference between 
the fixed and circulating capital is the only one which ob- 
trudes itself. 

The excess in value, then, if determined by the rate of 
profit, appears as a surplus generated annually, or during a 



62 Capitalist Production. 

definite period of circulation, by the total capital above its 
own value. 

While the rate of profit differs numerically from the rate 
of surplus-value, the profit and the surplus-value are actually 
the same thing and numerically equal. However, the profit 
is a transformed kind of surplus-value, a form in which its 
origin and the secret of its nature are obscured and extin- 
guished. rJ*p©fii-ia,__therefoi'e, that disguise of surplus-value 
which must be removed before~l'he real nature of surplus- 
value can. be discovered. In the surplus-value, the relation 
between capital and labor is laid bare. But in the relation 
of capital and profit, that is to say, the relation between 
capital and that form of surplus-value which appears on one 
hand as an excess over the cost-price of commodities realized!^ 
in the process of circulation, and on the other hand as a sur- 
plus determined by its relation to the total capital, the capital 
appears as a relation to itself, a relation in which it, as the 
original amount of value, is distinguished from a new value 
generated by itself. It is dimly recog-nized, that capital gen- 
erates this new value by its movement in the processes of 
production and circulation. But the way in which this is 
done is surrounded by mystery, and thus surplus-value seems 
to be due to hidden qualities inherent in capital itself. 

To the extent that we follow up the process of self-expan- 
sion of capital, the nature of the relation of surplus-value to 
capital becomes more and more mystified, and it becomes in- 
creasingly difficult to discover the secret of its internal or- 
ganism. 

In this first part, we shall consider the rate of profit as- 
numerically different from the rate of surplus-value, while 
profit and surplus-value will be treated as the same numerical 
magnitude having only a different form. In the second part 
we shall see that the transformation continues and that profit 
presents itself as a magnitude differing also numerically 
from surplus-value. 



Relation of Profit to Surplus-Value. 63, 



CHAPTEE III. 

THE KELATION OF THE KATE OF PROFIT TO THE KATE OF 

SUKPLUS-VAEUE:. 

We have stated at the conclusion of the preceding chapter, 
and repeat it here, that we consider in this entire first part 
the amount of profit made by a certain capital to be equal to 
the full amount of surplus-value produced by means of this 
capital during a certain period of circulation. In other 
words, we leave aside for the present the fact that this sur- 
plus-value is split up into various secondary forms, such as 
interest on capital, ground-rent, taxes, etc., and that surplus- 
value is not identical, as a rule, with profit as appropriated 
on the basis of an average rate of profit, which will be dis- 
cussed in part II. 

So far as the quantity of profit is assumed to be equal to 
that of surplus-value, its magnitude, and that of the rate of 
profit, is determined by the relations of simple numerical 
magnitudes given or ascertainable in every individual case. 
The analysis, therefore, is first carried on purely on the field 
of mathematics. 

We retain the terms used in volumes I and II. The total 
capital C consists of constant capital c and variable capital v, 
and produces a surplus-value s. The ratio of this surplus- 
value to the advanced variable capital, or ■—, is called the rate 
of surplus-value and designated by s'. Therefore -^ = s', 
and s = s'v. If this surplus-value is calculated on the total 
capital instead of the variable capital, it is called profit, p, 
and the ratio of the surplus-value s to the total capital 
C, or ~, is called the rate of profit, p'. Accordingly, 
V—-c; = z^- ^ow, substituting for s its equivalent s'v, 
we find p' = s'-J=s'^. And this equation may be ex- 
pressed by the proportion p' : s' ^ v : C, or in words, the 



64 Relation of Profit to Surplus-Value. 

rate of profit is proportioned to the rate of surplus- value as 
the variable capital is to the total capital. 

This proportion shows that the rate of profit, p', is al- 
ways smaller than the rate of surplus-value, s', because the 
variable capital, v, is always smaller than the total capital, 
C, which is the sum of v -f- c, the variable plus the constant 
capital. The only exception to this rule is the practically 
impossible case, in which v = C, that is to say, in which n( i 
constant capital, no means of production, are advanced by 
the capitalist, but only wages. 

However, our analysis must take into account a few other 
elements, which have a determining influence on the magni- 
tude of c, V, and s. We shall mention them briefly. 

There is^ first, the value of money. We may assume this 
to be constant, throughout our analysis. 

In the second place, there is the turn-over. We leave this 
element entirely out of consideration for the present, since 
its influence on the rate of profit will be treated later on in 
a special chapter. [We anticipate here only one point, 
namely that the formula p' = s''-J- is strictly correct only 
for one period of turn-over of the variable capital. But we 
may make it correct for an annual turn-over by substituting 
for s', the simple rate of surplus-value, the factor s'n, mean- 
ing the annual rate of surplus-value. The factor n in this 
term expresses the number of turn-overs of the variable capi- 
tal during one year. (See chapter XVI, I, volume II.) — 
F. E.] 

In the third place, the productivity of labor must be con- 
sidered. Its influence on the rate of surplus-value has been 
thoroughly discussed in volume I, part V. The productivity 
of labor may also exert a direct influence on the rate of profit, 
at least of an individual capital. It has been demonstrated 
in volume I, chapter XII, that an individual capital may re- 
alize an extra profit, if it operates with a greater productivity 
than that of the social average and thereby produces its com- 
modities at a lower value than the social average value of the 
same commodities. However, this case will not be considered 
for the present, since our premise in this part of the work 



Relation of Profit to Surplus-Value. 65 

is that the commodities are produced under normal social con- 
ditions and sold at their values. Hence Ave assume in each 
case that the productivity of labor remains constant. Under 
these circumstances the composition of the values of any capi- 
tal invested in any line of industry, in other words, the pro- 
portion between the variable and constant capital, expresses 
a definite degree in the productivity of labor. As soon as 
this proportion is altered by other means than a mere change 
in the value of the material elements of the constant capital, 
or a change in the value of wages, it follows that the pro- 
ductivity of labor must likewise undergo a corresponding 
change. We shall see frequently, for this reason, that altera- 
tions affecting the factors c, v^, and s imply also changes in 
the productivity of labor. 

The same applies to the three remaining factors, namely 
the length of the working day, the intensity of labors and the 
wages. Their influence on the mass and rate of surplus- 
value has been discussed in detail in volume I. It will be 
understood, therefore, that notwithstanding our assumption 
that these three factors remain constant there may be changes 
in V and s which may imply changes in the magnitude of 
these determining elements. In this respect we have but to 
remember that wages influence the quantity of surplus-value 
and the degree of the rate of surplus-value inversely from 
the length of the working day and the intensity of labor; 
that an increase of wages reduces the surplus-value, while a 
prolongation of the working day and an increase in the in- 
tensity of labor add to it. 

Take it that a capital of 100 produces with 20 laborers by 
a working day of 10 hours and a total weekly wage of 20 a 
surplus-value of 20. Then we have 80 c -|- 2(3 v -[- 20 s, 
which implies that s' equal 100% and p' 20%. 

Now let the working day be prolonged to 15 hours without 
an increase of wages. The total value produced by the 20 
laborers is thereby increased from 40 to 60, since 10 : 15 = 
40 : 60. Seeing that v, the w^ages paid to the laborers, re- 
mains the same, the surplus-value rises from 20 to 40, and 
we have 80 c -j- 20 v + 40 s, implying that s' equals 200% 



66 Capitalist Production. 

and p' 40%. If, on the other hand, the working day re- 
mains unchanged at 10 hours, while wages fall from 20 to 12, 
the total value produced amounts to 40, but it is differently 
distributed. For v falls to 12, leaving a remainder of 28 
for s. Then we have 80 c + 12 v + 28 s, whereby s' is 
raised to 233^%, while the rate of profit, p', is as 28 to 92, 
or 30H%. 

We see, then, that both a prolongation of the working day 
(or a corresponding increase in the intensity of labor) and 
a fall in wages increase the mass, and thus the rate, of sur- 
plus-value. On the other hand, a rise in wages, other circum- 
stances remaining the same, would lower the rate of surplus- 
value. Hence, if v rises through an increase of wages, it 
does not mean a greater, but only a dearer quantity of labor, 
and in that case s' and p' do not rise, ])ut fall. 

This indicates that a change in the working day, in the 
intensity of labor, and in wages cannot take place without at 
the same time altering v and s and their proportion, and 
therefore also p', which expresses the proportion of s to the 
total capital c -(- v. And it is also evident that a change 
in the proportion of s to v implies a corresponding change in 
at least one of the three determining elements of labor. 

It is precisely this fact which reveals the specific organic 
relationship of variable capital to the movement of the total 
capital and its self-expansion, and also its difference from 
the constant capital. So far as it is a cjuestion of the gen- 
eration of value, the constant capital is significant only f^r 
its value. It is immaterial for this question, whether a 
constant capital of, say, 1,500 p.st. represents 1,500 tons of 
iron at 1 p.st. each, or 500 tons of iron at 3 p.st. each. The 
quantity of the actual material, in which the value of the 
constant capital is incorporated, is immaterial for the ques- 
tion of the formation of value and the rate of profit. This 
rate varies inversely to the value of the constant capital, no 
matter what may be the proportion of the increase or de- 
crease of the value of constant capital to the mass of its ma''[ 
terial elements. 



Relation of Profit to Surplus-Value. 67 

It is different with the variable capital. Not its own value, 
not the labor incorporated in this capital, are of prime im- 
portance, but the fact that its own value implies the setting in 
motion of a grand total of labor whose quantity it does not 
express. This grand total of labor differs from the labor 
expressed in the value of the variable capital and paid by it 
in that it contains a certain amount of surplus-labor, which is 
so much greater, the smaller the value of the labor contained 
in the variable capital. Take it that a working day of 10 
hours is equal to 10 shillings. If the necessary labor, which 
pays for the wages, or makes good the variable capital, is 
worth 5 shillings, then the surplus-labor amounts to 5 hours, 
or the surplus-value to 5 shillings. If the necessary labor 
amounts to 4 hours and is worth 4 shillings, then the surplus- 
labor is 6 hours and the surplus-value 6 shillings. 

Hence, as soon as the value of the variable capital ceases 
to be an index of the amount of labor actually set in motion 
by it, as soon as the measure of this index is altered, the rate 
of surplus-value will vary inversely and at an inverse ratio. 

Now let us pass on and apply the previously found equa- 
tion of the rate of profit, p' = s' -^, to the various cases 
possible. We shall change the value of the individual factors 
of s' -^ one after another and ascertain the effect of these 
changes on the rate of profit. In this way we obtain a num- 
ber of different cases, which we may regard either as succes- 
sively altered determinants of one and the same capital, or as 
different capitals existing side by side and compared with 
one another, no matter whether they exist in different lines of 
industry or different countries. In cases where the concep- 
tion of some of our examples as successive conditions of the 
same capitals seems forced or impracticable, this objection is 
set aside by regarding them as illustrations of independent 
capitals. 

We now separate the product s' -^ into its two factors s' 
and -^. In the first place, we treat s' as a constant factor 
and analyze the effects of the possible variations of -^. After 
that we treat the fraction -^ as constant and let s' go through 



i 



68 Capitalist Production. 

its possible variations. Finally we treat all factors as vari- 
able magnitudes and thereby exhaust all cases from which 
rules concerning the rate of profit may be derived. 

I. s' constant, -^ variable. 

We make a general formula for this case, which comprises 
a number of sub-cases. Take two capitals C and Cj, with 
their respective variable proportions v and Vj, with equal rates 
of surplus-value s', and the rates of profit p' and p/. Then 
p' = s'-J and p/ = s'K. 

ISTow^ let us make a proportion of C and C^, and v and Vj, 
for instance let the value of the fraction §i == E, and that 
of ^ = e. Then Cj = EC, and v^ = ev. Substituting in 
the above equation these values for p/, Cj and v^, we obtain 
p/ = s' g^. Again, we may deduct a second formula from 
the above tw^o equations, by transforming them into the equa- 
tion p' : pi' = s' -J : s' c^ = "E" : C^- Since the value of a 
fraction remains the same, if we multiply or divide its nu- , 
merator or denominator by the same number, we may reduce 
-^ and p-, to ^percentages, that is to say we may make both C 
and C^ equal to 100. Then we have -J = -j^ and ^ = ^. 
We may then drop the denominators in the above proportion 
and say that p' : pi' =, v : v^. In other words, Avith any two 
capitals operating with the same rate of surplus-value the 
rates of profit are proportioned to one another as the variable 
capitals are to one another, calculated in percentages on 
their respective total capitals. 

These two fonnulse comprise all cases of variation of -^. 

Before we analyze these various cases, we make another 
remark. Since C is the sum of c plus v, of the constant and 
variable capital, and since the rates of surplus-value and of 
profit are generally expressed in percentages, it is convenient 
to assume that the sum of c plus v is also equal to 100, that 
is to say, to express c and v in percentages. It is immaterial 
for the determination, not of the mass, but of the rate of 
profit, whether we say that a capital of 15,000, composed of 
12,000 of constant and 3,000 of variable capital, produces a 
surplus-value of 3,000, or whether we reduce this capital to per- 
centages. So we may say that 15,000 C = 12,000 c -f 3,000 



Relation of Profit to Surplus-Value. 69 

v+ (3,000 s), or that 100 C = 80 c + 20 v + (20 s). In 
either case the rate of surplus-value, s', equals 100% and the 
rate of profit, p', 20%. 

The same is true in the comj^arison of two capitals. For 
instance, if we compare the foregoing capital with another, 
such as 12,000 C =. 10,800 c + 1,200 v + (1,200 s), or 100 
C = 90 c + 10 V + (10 s). In the last case, s' is 100% 
and p', 10%. And its comparison with the foregoing capital 
is easier by percentages. 

On the other hand, if it is a question of changes taking 
place in the same capital, the expression by percentages is 
rarely convenient, because these peculiar alterations are al- 
most always obliterated thereby. If a capital, expressed in 
percentages of 80 c + 20 v 4- 20 s assumes the percentages 
of 90 c -f- 10 V -|- 10 s, we cannot tell whether the change in 
the composition of percentages is due to an absolute decrease 
of v or an absolute increase of c, or to both. In order to as- 
certain this, we must have the absolute magnitudes in figures. 
But in the analysis of the following individual cases, every- 
thing depends on the question of the way in which the varia- 
tions have been accomplished. Has 80 c -|- 20 v been changed 
into 90 c -|- 10 V by an increase of the constant capital with- 
out any change in the variable capital, for instance by chang- 
ing 12,000 c + 3,000 V into 27,000 c + 3,000 v ? Or has 
the same result been accomplished by leaving the constant 
capital untouched and reducing the variable capital, for in- 
stance by changing the above capital into 1^,000 c -|- 1,333^ v 
(corresponding to a percentage of 90 c -f- 10 v) ? Or have 
both of the original capitals been changed into 13,500 c -|- 
1,500 V (corresponding once more to percentages of 90 c -j- 
10 v) ? It is precisely these cases which we shall have to an- 
alyze, and in so doing we must dispense with percentages, or 
at least employ them only in a minor degree. 

1. s^ and C constant, v variable. 

If v changes its magnitude, then C can remain unaltered 
only by a change in the opposite direction of c, the other com- 
ponent of C. If C consists originally of 80 c + 20 v, and if 
v is reduced to 10, then C can remain 100 only by an increase 



70 Capitalist Production. 

of c to 90; for 90 c + 10 v = 100. Generally speaking, if 
V is transformed into v ± d, into v increased or decreased by 
d, then c must be transformed into c + d, into c decreased or 
increased by the same amount, into c varying in the opposite 
direction from v, in order that the conditions of the present 
case be fulfilled. 

Again, if the rate of surplus-value, s', remains the same, 
while the variable capital, v, changes, then the mass of sur- 
plus-value must change, since s = s'v, and since one of the 
factors of s'v, namely v, is invested with a different value. 

The assumptions of the present case produce, aside from 
the original equation p' = s' -^, still another equation by the 
variation of v, namely p/ = s' ■^', in which v has become Vi 
and p/, the corresponding rate of profit, is to be sought. 

It is found by the corresponding proportion : 
p' : p/ = s' "c : s' -^ = v : Vi. 
That is to say, if the rate of surplus-value and the total capi- 
tal remain the same, then the original rate of profit is propor- 
tioned to the new rate of profit produced by a change in the 
variable capital as the original variable capital is to the changed 
variable capital. 

If the original capital was I) 15,000 C = 12,000 c -|- 
3,000 v -F (3,000 s), and if it is now II) 15,000 C = 
13,000 c + 2,000 V + (2,000 s), then C is 15,000 and the 
rate of surplus-value 100% in either case, and the rate of 
profit of I), 20%, is proportioned to that of II), 13^%, as 
the variable capital of I), 3,000, is to the variable capital of 
II), 2,000, that is to say 20% : 13^% = 3,000 : 2,000. 

Now, the variable capital may either increase or decrease. 
Take first an example in which it increases. Let a certain 
capital be constituted and operated as follows: I) 100 c -|- 
20 V + 10 s. Then C equals 120, s' equals 50%, and p' 
equals 8|%. Now let the variable capital increase to 30. 
In that case the constant capital must fall to 90, according 
to our assumption, which requires that the total should re- 
main unchanged at 120. The amount of surplus-value pro- 
duced will then rise from 10 to 15, the rate of surplus-value 



Relation of Profit to Surplus-Value. 71 

remaining constant at 50%. Our capital then is constituted 
as follows : 

II) 90 c + 30 V + 15 s. C equals 120, s' equals 50%, and p', 
12^%. 

Now let us start out with the assumption that the wages 
remain unchanged. Then the other factors of the rate of 
surplus-value, namely the working day and the intensity of 
labor, must also be unchanged. Therefore the increase of v 
from 20 to 30 can signify only that more laborers are em- 
ployed. In that case the total product in values also increases 
by one-half, from 30 to 45, and is distributed, the same as 
before, to f for wages and \ for surplus-value. Simulta- 
neously with the increase in the number of laborers the con- 
stant capital, the value of the means of production has fallen 
from 100 to 90. We have before us then, a case of de- 
creasing productivity of labor combined with a simultaneous 
decrease of constant capital. Is such a case economically 
possible? 

In agriculture and industries engaged in the extraction of 
substances, where a decrease in the productivity of labor and, 
therefore, an increase in the number of laborers are readily 
understood, this process is accompanied on the basis and 
within the scope of capitalist production, by an increase of 
constant capital, not by a decrease. Even if our assumed 
decrease of c were due merely to a fall in prices, an indi- 
vidual capital would be able to accomplish the transition from 
I) to II) only under very exceptional circumstances. But in 
the case of two independent capitals invested in different 
countries, or in different lines of agriculture or extractive 
industry, it would not be strange if more laborers (and 
therefore more variable capital) were employed on less valu- 
able or fewer means of production in the case of one than in 
the other. 

But let us have done with the assumption that the wages 
remain the same, and let us explain the rise of the variable 
capital from 20 to 30 by a rise of wages by one-half. Then 
we have another case. The same number of laborers con- 
tinue to work with the same or slightly reduced means of 



72 Capitalist Prodnctioru 

production. If the working day remains unchanged, say at 
10 hours, then the total product also remains unchanged. It 
was and remains 30. But this amount of 30 is now required 
to make good the consumed variable capital. The surplus- 
value would have disappeared. But we had assumed that the 
rate of surplus-value should remain constant at 50%, the 
same as in I). This is possible only if the working day is 
prolonged by one-half, increased to 15 hours. In that case 
20 laborers produce in 15 hours a total value of 45, and all 
conditions would be fulfilled. We should have 

II). 90 c + 30 V + 15 s. C would be 120, s', 50% and 
p', 121%. 

Under these circumstances the 20 laborers do not require 
any more instruments, tools, machines, etc., than in the case 
of I). Only the raw materials or auxiliary substances would 
have to be increased by one-half. If there were a fall in the 
prices of these materials, then the transition from I) to II) 
under the conditions of our assumed case might very well be 
accomplished even by an individual capital. And the capi- 
talist would be somewhat compensated by increased profits 
for any loss incurred through the depreciation of his constant 
capital. 

Now let us assume that the variable capital were to be re- 
duced instead of increased. Then we have but to reverse 
our example. We have but to assume that II) is the orig- 
inal capital and to pass from II) to I). Then II), or 
90 c -f 30 V + 15 s changes into I), or 100 c -f 20 v -f 10 s, 
and it is evident that this transposition does not alter any of 
the conditions which regulate the respective rates of profit 
and their mutual relations. 

If V falls from 30 to 20 because the number of laborers is 
reduced by one-third while the constant capital increases, then 
we have before us the normal case of modem industry, namely 
an increasing productivity of labor, an operation of a larger 
mass of means of production by fewer laborers. That this 
process is necessarily connected with a simultaneous fall of 
the rate of profit, Avill be demonstrated in the third part of 
this volume. 



Relation of Profit to Surplus-Value. 73 

On the other hand, if v falls from 30 to 20 because the 
same number of laborers are employed at lower wages, while 
the working day remains the same, then the total product in 
values would remain 30 v -|- 15 s, or 45. Since wages have 
fallen to 20, the surplus-value would rise to 25, the rate of 
surplus-value from 50% to 125%, contrary to our assump- 
tion. In order to comply with the conditions of our case, the 
surplus-value, with its rate at 50%, must fall to 10. The 
total product must, therefore, fall from 45 to 30, and this is 
possible only by a reduction of the working day by one-third. 
Then we have, the same as before, 100 c + 20 v -f-10 s. C 
equals 120, s', 50%, and p', 8^%. 

It need hardly be mentioned that this reduction of the 
working time with a fall in wages would not occur in practice. 
But this is immaterial. The rate of profit is a function of 
several variable magnitudes, and if we wish to know in what 
manner these variable magnitudes influence the rate of profit, 
we must analyze the individual effect of each seriatim, re- 
gardless of whether such an isolated effect is practicable with 
one and the same capital or not. 

2) ^ constant, v variable, C changed by the variation' of v. 

This case differs from the preceding one only in degree. 
Instead of c decreasing or increasing by as much as v in- 
creases or decreases, c remains constant. Under the modern 
conditions of great industry and agriculture the variable cap- 
ital is but a relatively small part of the total capital. For 
this reason, the increase or decrease of the total capital, so far 
as either is due to variations of the variable capital, are like- 
wise relatively small. 

Let us start out again with a capital I) of 100 c -|- 20 v -f- 
10 s. C equals 120, s' 50%, and p' 8^%,. This will then be 
transformed into II) 100 c + 30 v + 15 s, with C at 130, s' 
at 50%, and p' at 11-t^%. The opposite case, in which the 
variable capital would decrease, would be symbolized by the 
transition from II) to I). 

The economic conditions would be essentially the same as 
m the preceding case, and therefore require no reiteration. 
The transition from I) to II) implies a decrease in the pro- 



74 Capitalist Production, 

ductivity of labor by one-half. The assimilation of 100 c 
requires an increase of labor in II) by one-half over that of 
I). This case may occur in agriculture.® 

While in the preceding case the total capital remained con- 
stant, owing to the conversion of constant capital into vari- 
able, or vice versa, there is in this case a tie-up of additional 
capital, if the variable capital is increased, and a release of 
previously employed capital, if the variable capital decreases. 

3) s' and v constant, c and C variable. 

In this case, the equation p' = s' -^ is changed into 
p/ = s' ^,. After eliminating the same factors on both sides,'] 
we have p/ : p' = C : Ci. In other words, if the rates of 
surplus-value are the same and the variable capitals equal, 
the rates of profit are inversely proportioned to the total cap- 
itals. 

Take it that we have three different capitals, or three dif- 
ferent conditions of the same capital, for instance 

I) 80 c + 20 V + 20 s; C = 100, s' = 100%, p' = 20 % 

II) 100 c + 20 V + 20 s; C = 120, s' = 100%, p' = 16f% 

III) 60 c -f 20 V + 20 s; C = 80, s' = 100%, p' = 25 % 

Then we obtain the proportions: 

20% : 161%, = 120 : 100, and 20% : 25%o = 80 : 100. 

The general formula previously given for variations of 
■^ when s' remained constant was p/ = s' g^. Now it be- 
comes p' = s' eT5- For since v remains unchanged, the fac- 
tor e, or v> becomes equal to 1. 

Since s'v equals s, the mass of surplus-value, and since 
both s' and v remain constant, it follows that s is not affected 
by any variation of C. The mass of surplus-value is the 
same after the change that it was before. 

If c were to fall to zero, p' would be equal to s', that is to j 
say, the rate of profit equal to the rate of surplus-value. 

The alteration of c may be due either to a mere change in J 
the value of the material elements of constant capital, or | 
to a change in the technical composition of the total capital, 

'The manuscript has the following note at this point: "Investigate later in what 
maimer this case is connected with ground-rent." 



Relation of Profit to Surplus-Value. 75 

that is to say a change in the productivity of labor in that 
line of industry. In the last named case, the increase in the 
productivity of social labor due to the development of in- 
dustry and agriculture on a large scale would bring about 
a transition, in the above illustration, from III to I and 
from I to II. A quantity of labor paid with 20 and pro- 
ducing a value of 40 would first work up means of produc- 
tion valued at 60. With a further increase in the produc- 
tivity, and the same value, the means of production would be 
worked up to the amount of 80, and later on of 100. A re- 
version of this succession would imply a decrease in produc- 
tivity. The same quantity of labor would work up a smaller 
quantity of means of production, the business would be cut 
down. This may occur in agriculture, mining, etc. 

A saving in constant capital increases on the one hand the 
rate of profit, and on the other sets free some capital. It is, 
therefore, of great importance for the capitalist. We shall 
analyze this point later on, and likewise the influence of a 
change of prices of the elements of constant capital, particu- 
larly of raw materials. 

We see once more, by this illustration, that a variation of 
the constant capital uniformly affects the rate of profit, no 
matter whether this variation is due to an increase or de- 
crease of the material elements of c, or merely to a change in 
their value. 

4) s' constant, v, c, and C variable. 

In this case, the general formula indicated at the outset, 
namely p' = s' |^, remains in force. It follows from this, 
assuming the rate of surplus-value to remain the same, that 

a) the rate of profit falls, if E is greater than e, that is 
to say, if the constant capital increases to such an extent that 
the total capital grows at a faster rate than the variable cap- 
ital. If a capital of 80 c -f- 20 v + 20 s is transformed so 
that it becomes 170 c + 30 v + 30 s, then s' remains at 100%, 
but ^ falls from 100 to ^. in spite of the fact that both 
V and C have augmented, and the rate of profit falls corre- 
spondingly from 20% to 15%. 

b) The rate of profit remains unchanged only in the case 



76 Capitalist Production. 

that e equals E, that is to say^ if the fraction -^ retain the 
same value even if the fraction is apparently changed, in 
other words, if its numerator and denominator are multi- 
plied or divided by the same number. It is evident that the 
capital 80c + 20vH-20s and the capital 160 c + 40 v + 
40 s have the same rate of profit, namely 20%, because s' 
remains at 100% and -^ represents the same value, whether 
we write it y^^ or 2W. 

c) The rate of profit arises, when e is greater than E, that 
is to say, when the variable capital grows at a faster rate 
than the total capital. If 80 c + 20 v + 20 s becomes 120 c 
-|- 40 V -|- 40 s, then the rate of profit rises from 20% to 
25%, because s' has remained the same and -^ has risen 
from -^-Q to xW; or from ^ to i- 

If the variation of v and C follows the same direction, we 
may look upon this change of magnitude up to a certain de- 
gree as though both of them varied in the same proportion, 
so that -^ would be regarded as unchanged to that extent. 
Beyond this point only one of them would then vary, and by 
this means we should reduce this complicated case to one of 
the preceding simpler ones. 

For instance, if 80 c + 20 v + 20 s becomes 100 c4- 30 v 
-|- 30 s, then the proportion of v to c, and also to C, remains 
the same up to the point of 100 c + 25v + 25s. Up to 
that point, the rate of profit remains likewise unchanged. 
We may then take our departure from 100 c + 25 v -|- 25 s. 
We find that later increased by 5 and became 30, so that C 
rose from 125 to 130. This is identical with the second 
case, that of the simple variation of v and the consequent 
variation of C. The rate of profit, which was originally 
20%, rises by this addition of 5 v to 23^^^%, always assum- 
ing the rate of surplus-value to remain the same. 

The same reduction to a simpler case can take place, when- 
ever V and C change their magnitudes in opposite directions. 
For instance, let us start out once more from 80 c -j- 20 v 
+ 20 s, and let this become 110 c + 10 v + 10 s. In that 
case, the rate of profit would have remained the same, if the 



I 



Relation of Profit to Surplus-Value. yy 

variation had proceeded to tlie point of 40 c + 10 v -f- 10 s. 
It would still have been 20%, By adding 70 c to this in- 
termediate form, the rate of profit is lowered to 85%. Thus 
we have reduced this case to a case of variation of one mag- 
nitude, namely of c. 

Simultaneous variations of v, c, and C, do not, then, offer 
any new points of analysis. For they may be reduced in 
the last resort to cases in which only one factor is variable. 

Even the only remaining case has actually been covered, 
namely that in which v and C are numerically unchanged, 
while their material elements experience a change of value, 
so that V stands for a changed quantity of assimilated labor 
and c for a changed quantity of assimilated means of pro- 
duction. 

For instance, in the capital 80 c + 20 v -|- 20 s, let 20 v 
indicate originally the wages of 20 laborers working 10 hours 
daily. Then let the wages of each laborer increase from 1 
to 1^. In that case 20 v pay only 16 laborers instead of 
20. I^ow, if 20 laborers produce in 200 working hours a 
value of 40, then 16 laborers will produce in 160 working 
hours a value of only 32. After deducting 20 v for wages, 
only 12 would remain for surplus-value. The rate of sur- 
plus-value would have fallen from 100% to 60%. But since 
our assumption is that the rate of surplus-value shall remain 
constant, the working day would have to be prolonged by one- 
quarter, from 10 hours to 12^ hours. If 20 laborers, work- 
ing 10 hours daily, or 200 hours, produce a value of 40, then 
16 laborers, working 12^ hours daily, or 200 hours, will pro- 
duce the same value, and the capital of 80 c -j- 20 v pro- 
duces the same surplus-value of 20. 

Vice versa, if wages fall to such an extent that 20 v in- 
dicates the wages of 30 laborers, then s' can remain imchanged 
only in the case that the working day is reduced from 10 to 
6| hours. For 20 X 10 = 30 X 6| = 200 working hours. 

We have discussed previously in these diverging assump- 
tions, to what extent c may express the same value in money, 
and yet represent different quantities of means of production 
corresponding to different conditions. In reality this case 



78 Capitalist Production. 

will very rarely be practicable in its purely theoretical form. 

As for the change of value of the elements of c, by which 
their mass is increased or decreased, it touches neither the 
rate of surplus-value nor the rate of profit, so long as it does ; 
not imply a change of magnitude in v. . "m. 

We have now exhausted all possible cases of variation of 
V, c, and C in our equation. We have seen that the rate of 
profit may fall, rise, or remain unchanged, while the rate of 
surplus-value remains the same, for the least variation in the 
proportion of v to c, or to C, is sufficient to change the rate 
of profit. 

We have seen, furthermore, that there is everywhere a cer- 
tain limit in the variation of v where the constancy of s' 
becomes economically impossible. Since every one-sided varia- 
tion of c must also arrive at a certain limit where v can no 
longer remain unchanged, we find that every possible varia- 
tion of -g- has certain limits, beyond which s' must likewise 
become variable. In the variations of s', which we shall now 
discuss, this interaction of the different variable magnitudes 
of our equation will become still plainer. 

II. s' variable. 

We obtain a general formula for the rates of profit with 
variable rates of surplus-value, no matter whether -^ re- 
mains constant or not, by converting the equation p' = 
s' -^ into p/ = s/ ■^,. Here p/, s/, Ci, and Vi indicate 
the changed values of p', s', C, and v. Then we have 
p' : pi' = s' "o" : s/ ^, This may be manipulated into 
p/ = f-' X -F X -gi X p'. 

1) s' variable, -^ constant. 

In this case we have the equations p' = s' -^ and p/ = 
s/ -5-. In both of them -^ is equal. Therefore p' : pr = 
s' : s/. That is to say, the rates of profit of two capitals of 
tliftcsame composition are proportioned as the corresponding 
two rates of surplus-value. Since it is not a question, in the 
fraction -g-, of the absolute magnitude of v and C, but only 
of their proportion to one another, this applies to all capitals 



Relation of Profit to Surplus-Value. 79 

of equal composition, whatever may be their absolute magni- 
tude. 

80 c + 20 V + 20 s; C = 100, s' = 100%, p' = 20%. 
160 c + 40 V + 20 s; C = 200, s' = 50%, p' = 10%. 

100% : 50% = 20% : 10%. 
If the absolute magnitudes of v and C are the same in both 
cases, then the rates of profit are also proportioned to one an- 
other as the masses of surplus-value : p' : p/ = s'v : s/v = 
s : Si. For instance: 

80 c -I- 20 V -F 20 s; s' = 100%, p' = 20%. 
80 c + 20 V + 10 s; s' = 50%, p' = 10%. 
20% : 10% = 100 X 20 : 50 X 20 = 20 s : 10 s. 
Now, it is evident that with capitals of equal absolute com- 
position, or equal percentages of composition, the rates of sur- 
plus-value can differ only when either the wages, or the length 
of the working day, or the intensity of labor are different. 
Take the following three cases: 

s' = 50%, p' = 10%. 
s' = 100%, p' = 20%. 
s' = 200%, p' = 40%. 
In the case of I, the total product in values is 30, namely 
20 V -f- 10 s , in II it is 40, in III it is 60. This may come about 
in three different ways. 

First, if the wages are different, so that 20 v expresses in 
every individual case a different number of laborers. Take it 
that capital I employs 15 laborers for 10 hours per day at a 
wage of If p.st. and that these laborers produce a value of 30 
p.st. of which 20 p.st. make good the wages and 10 p.st. are 
surplus-value. If wages fall to 1 p.st., then 20 laborers may 
be employed for 10 hours, and they will produce a value of 40 
p.st., of which 20 p.st. make good wages and 20 p.st. are sur- 
plus-value. If wages fall still more, for instance to f p.st , 
then 30 laborers may be employed for 10 hours, and they w\U 
produce a value of 60 p.st., 40 p.st. of which will represt ^t 
surplus-value after deducting 20 p.st. for wages. 

This case, in which the percentages of composition of the 
capital, the working day, the intensity of labor, are constant, 
while the rate of surplus-value varies on account of the varia- 



I. 80 c -f 20 V + 10 s 

II. 80 c + 20 V 4- 20 s 

III. 80 c + 20 V 4- 40 s 



8o Capitalist Production. 

tion of wages, is the only one in which Ricardo's assumption 
is correct, to-wit, that " profits would be high or low, exactly 
in proportion as wages would be low or high," (Principles, 
chapter I, section III, page 18 of the " Works of D. Ri- 
cardo," edited by MacCulloch, 1852.) 

Secondly, if the intensity of labor varies. In that case 
20 laborers produce with the same means of production in 10 
hours of daily labor 30 pieces of a certain commodity in I, 
40 pieces in II, and 60 pieces in III. Every piece repre- 
sents, aside from the value of the means of production in- 
corporated in it, a new value of 1 p.st. Since every 20 pieces 
make good the wages of 20 p.st., there remain 10 pieces at 
10 p.st. for surplus-value in I, 20 pieces at 20 p.st. in II, and 
40 pieces at 40 p.st, in III. 

Thirdly, the working day may vary in length. If 20 la- 
borers work with the same intensity for 9 hours in I, 12 hours 
in II, and 18 hours in III, then their total products, 30 :40 : 
GO vary in the proportions 9 : 12 : 18. And since wages are 
20 in every case, the surplus-value is 10, or 20, or 40 re- 
spectively. 

An increase or decrease in wages, then, influences the rate 
of surplus-value, and, since -J- was assumed as constant, also 
the rate of profit, inversely, while an increase or decrease in 
the intensity of labor, a lengthening or shortening of the work- 
ing day, influence them in the same direction. 

2) s^ and v variable, C constant. 

In this case the following proportion applies: p' : p/ = 
s -^ : Sj -^ = s V : s^ v^ ^ s : s^. 

The rates of profit are proportioned to one another as the 
corresponding masses of surplus-value. 

A variation of the rate of surplus-value, while the variable 
capital remains constant, signifies a change in the magnitude 
and distribution of the product in values. A simultaneous 
variation of v and s' also implies always a change in the dis- 
tribution, but not always a change in the magnitude of the 
product in values. Three cases are possible. 

a) The variation of v and s' takes place in opposite direc- 
tions, but by the same amount, for instance: 



Relation of Profit to Surplus-Value. 8i 

80 c + 20 V + 10 s ; s' = 50%, p' = 10%. 

90 c + 10 V + 20 s ; s' = 200%, p' = 20%. 
The product in values is equal in both cases, hence the quan- 
tity of labor performed likewise : 20 v + 10 s = 10 v + 
20 s = 30. The difference is only that in the first case 20 
are paid for wages and 10 remain for surplus-value, v^^hile in 
the second case wages are 10 and surplus-value 20. This is 
the only case in which the number of laborers, the intensity 
of labor, and the length of the working day remain unchanged, 
while V and s' vary. 

b) The variation of s' and v takes place in opposite direc- 
tions, but not by the same amount. In that case the varia- 
tion of either v or s'' is the greater. 

I. 80 c + 20 V + 20 s ; s' = 100 %, p' = 20%. 
II. 72c + 28v + 20s; s' = 71f%, p' = 20%. 
III. 84c+16v + 20s; s' = 125 %, p' = 20%. 
Capital I pays for a product in values amounting to 40 
with 20 V, II a value of 48 witb 28, and III a value of 36 
with 16. Both the product in values and the wages have 
changed. But a change in the product in values means a 
change in the amount of labor performed, and this implies a 
change either in the number of laborers, the hours of labor, 
or the intensity of labor, or in more than one of these. 

c) The variation of s' and v takes place in the same di- 
rection. In that case it intensifies the effect of either. 

90 c + 10 V + 10 s ; s' = 100% , p' = 10%. 
80 c + 20 V -f 30 s ; s' = 150%, p' = 30%. 
92 c+ 8v+ 6s; s' = 75%, p' = 6%. 
In these cases the three products in value are also different 
namely 20, 50, and 14. And this difference in the magni- 
tude of the respective quantities of labor reduces itself ouce 
more to a difference in the number of laborers, the hours of 
labor, and the intensity of labor, or of several or all of these 
factors. 

3) s^, V and C variable. 

This case offers no new points of view and is solved by the 
general formula given under II, in which s' is variable. 



82 Capitalist Production. 

The effect of a change in the magnitude of the rate of sur- 
plus-value on the rate of profit is summed up, according to 
the foregoing, by the following cases: 

1) p' increases or decreases in the same proportion as s', 
if -^ remains constant. 

80 c + 20 V -t- 20 s; s' = 100%, p' = 20%. 

80 c -f- 20 V + 10 s; s' = 50%, p' = 10%o. 

100% : 50% = 20% : 10%. 

2) p' rises or falls at a greater rate than s', if -^ moves 
in the same direction as s', that is to say, if -^ increases or 
decreases when s' increases or decreases. 

80 c -f 20 V 4- 10 s; s' = 50 %, p' = 10%. 

70 c -f 30 V -h 20 s; s' = 66f%, p' = 20%. 

50% : 66f % < 10% : 20%. 

3) p' rises or falls at a smaller rate than s', if -^ changes 
in the opposite direction from s', but at a smaller rate. 

80 c -f 20 V -h 10 s; s' = 50%, p' = 10%. 
90 c -}- 10 V -f 15 s; s' = 150%,, p' = 15%. g 

50% : 150% > 10% : 15%. 

4) p' rises, while s' falls, or falls while s' rises, if -^ changes in 
the opposite direction and at a greater rate than s'. 

80 c -f 20 V + 20 s; s' = 100%, p' = 20%. ^ 

90 c -f 10 V + 15 s; s' = 150%, p' = 15%. |l 

s' has risen from 100%o to 150%o, p' has fallen from 20%, 
to 15%. 

5) Finally, p' remains constant, while s' rises or falls, if 
■^ changes in the opposite direction, but at exactly the same 
rate, as s'. 

It is only this last case which requires some further expla- 
nation. We observed in the variations of -^ that the same 
rate of surplus-value may be an expression of different rates 
of profit. We see now that the same rate of profit may be 
based on different rates of surplus-value. So long as s' is 
constant, any change in the proportion of v to C is sufficient 
to call forth a difference in the rate of profit. But if s' varies 
in magnitude, it requires a corresponding inverse change of -^ 
in order that the rate of profit may remain the same. This 
happens but exceptionally in the case of one and the same 



Relation of Profit to Surplus-Value. 83 

capital, or of two capitals in one and the same country. Take 
it that we have a capital 80 c + 20 v + 20 s; C = 100, s' = 
100%, p' = 20%. And let us assume that wages fall to such 
an extent that the same number of laborers may be bought for 
16 V instead of 20 v. Then we have released 4 v, and other 
circumstances remaining the same, our capital will have the 
composition 80 c + 16 v + 24 s; C = 96, s' = 150%,, p' = 
25%. In order that p' may be 20%, as before, the total cap- 
ital would have to increase to 120, the constant capital, there- 
fore, to 104, thus, 104 c -f 16 V + 24 s; C = 120, s' = 
150%, p' = 20%. 

This would be possible only if the fall in wages were ac- 
companied by a change in the productivity of labor, which 
would require such a change in the composition of capital. 
Or, it might be that the money value of the constant capital 
would increase from 80 to 104. In short, it would require 
an accidental coincidence of conditions such as occurs very 
rarely. In fact, a variation of s' which does not imply a 
simultaneous variation of v, and thus of -^ is practicable only 
under very definite conditions. It may happen in lines of 
industry in which only fixed capital and labor are employed, 
while the materials of labor are supplied by nature. 

But this is not so in the comparison of the rates of profit 
of two different countries. For in that case the same rate of 
profit is based as a rule on different rates of surplus-value. 

It follows from all of these five cases that a rising rate of 
profit may be the companion of a falling or rising rate of sur- 
plus-value; a falling rate of profit go hand in hand with a ris- 
ing or falling rate of surplus- value; a constant rate of profit ex- 
ist by the side of a rising or falling rate of surplus-value. And 
we have seen under No. 1 that a rising, falling, or constant 
rate of profit may be based on a constant rate of surplus- value. 



The rate of profit, then, is determined by two main factors, 
namely the rate of surplus-value and the composition of the 
value of capital. The effects of these two factors may be 
briefly summed up in the manner stated hereafter. We may, 
in this summing up, express the composition of capital in per- 



84 Capitalist Production. 

centages, for it is immaterial for this point which one of the 
two portions of capital is the canse of variation. 

The rates of profits of two different capitals, or of one 
and the same capital in two different successive conditions, 
are equal 

1) If the percentages of composition of capital are the 
same and the rates of surplus-value equal. 

2) If the percentages of composition are not the same, and 
the rates of surplus-value unequal, provided that the products 
of the multiplication of the rates of surplus-value by the per- 
centages of the variable portions of capital (s' and v) are the 
same, that is to saj, the masses of surplus-value (s = s'v) 
calculated in percentages on the total capital ; in other words, 
if the factors s' and v are inversely proportioned to one an- 
other in both cases. 

Tliey are unequal 

1) If the percentages of composition are equal and the 
rates of surplus-value unequal, in which case the rates of 
profit are proportioned as the rates of surplus-value. 

2 ) If the rates of surplus value are the same and the per- 
centages of composition unequal, in which case the rates of 
profit are proportioned as the variable portions of capital. 

3) If the rates of surplus value are unequal and the per- 
centages of composition not the same, in which case the rates 
of profit are proportioned as the products s'v, that is to say, 
as the masses of surplus-value calculated in percentages on 
the total capital. 1^ 

'" The manuscript contains also very detailed calculations of the difference be- 
tween the rate of surplus-value and the rate of profit (s' — p') ; these show very 
interesting peculiarities and their movement indicates the cases in which the two 
rates draw apart or approach one another. These movements may be represented 
by curves. I do not reproduce this material, because it is of less importance for 
the immediate purposes of this work. It is enough to call the attention of those 
readers to this fact who wish to follow up this line of inquiry. — F. E. 



Eftect of Turn-Over on Rate of Profit. 



CHAPTER IV, 

THE EFFECT OF THE TUKN'OVER ON THE KATE OF PROFIT. 

The effect of the turn-over on tlie production of surplus- 
value, and consequently of profit, has been discussed in vol- 
ume IT. It mav be briefly summarized in the statement that 
the entire capital cannot be employed all at once in produc- 
tion, because the turn-over requires a certain lapse of time ; 
for this reason a portion of the capital is always lying fallow, 
either in the form of money-capital, of a supply of raw ma- 
terials, of finished but still unsold commodity-capital, or of 
outstanding bills not yet due; hence the capital active in the 
production and appropriation of surplus-value is always short 
by this amount, and the production and appropriation of sur- 
plus-value is curtailed to that extent. The shorter the period 
of turn-over, the smaller is the fallow portion of capital as 
compared Avith the whole, and the larger will be the appro- 
priated surplus-value, other conditions remaining the same. 

It has been shown explicitly in the second volume to what 
extent the mass of the produced surplus-value is augmented 
by the reduction of the period of turn-over, or of one of its 
two sections, the time of production and the time of circula- 
tion. But it is evident that any such reduction increases the 
rate of profit, since this rate expresses but the mass of surplus- 
value produced in proportion to the total capital employed in 
production. Whatever has been said in the second part of the 
second volume in regard to surplus-value, applies just as well 
to profit and the rate of profit, and requires no repetition at 
this place. We shall touch only upon a few of the principal 
points. 

A reduction of the time of production is mainly due to an 
increase in the productivity of labor, a thing commonly called 
the progress of industry. If this does not require at once a 



86 Capitalist Production. 

considerable extra-outlay of capital for expensive machin- 
ery, etc., and thus a reduction of the rate of profit, which is 
calculated on the total capital, this rate must rise. And this 
is decidedly the case with many of the latest improvements 
in metallurgy and chemical industry. The recently discov- 
ered methods of making iron and steel, such as the processes 
of Bessemer, Siemens, Gilchrist-Thomas, etc., shorten for- 
merly tedious processes to a minimum with relatively small 
expense. The making of alizarin, a red coloring substance 
extracted from coal-tar, produces in a few weeks, by the help 
of already existing installations for the manufacture of coal- 
tar colors, the same results which formerly required years. 
It took at least one year to mature the plants from which this 
coloring matter was formerly extracted, and it was customary 
to let them grow a few years before the roots were used for 
the purpose of making color. 

The time of circulation is reduced principally by improved 
means of communication. In this respect the last fifty years 
have brought about a revolution, which can be compared only 
with the industrial revolution of the last half of the eighteenth 
century. On land the macademized road has been displaced 
by the railroad, on sea the slow and irregular sailing vessel 
by the rapid and regular steamboat line, and the entire globe 
has been circled by telegraph wires. The Suez Canal has 
fully opened Eastern Asia and Australia for steamer traffic. 
The time of circulation of a shipment of commodities to East- 
ern Asia was at least twelve months as late as 1847, and it 
has now been reduced to almost as many weeks. The two 
large centers of commercial crises, 1825-1857, America and 
India, have been brought from 70 to 90 per cent, nearer to 
Europe by this revolution of the means of communication, 
and have thereby lost a good deal of their explosive nature. 
The period of turn-over of the world's commerce has been re- 
duced to the same extent, and the productive capacity of the 
capital engaged in it has been doubled or trebled. It goes 
without sajnng that this has not been without effect on the rate 
of profit. 

In order to view the effect of the turn-over of the total 



Effect of Turn-Over on Rate of Profit. 87 

capital on the rate of profit in its purest form, it is necessary 
to assume all other conditions of two compared capitals as 
equal. Aside from the rate of surplus-value and the working 
day it is especially the percentages of composition which we 
assume to be the same. Now let us select a capital A com- 
posed of 80 c -F 20 V = 100 C. Let this have a rate of sur- 
plus-value of 100%, and let it be turned over twice per year. 

The annual product is then 160 c -f 40 v + 40 s. But for 
the purpose of ascertaining the rate of profit we do not cal- 
culate the 40 s on the turned-over capital-value of 200. We 
calculate it on the advanced capital of 100, and we obtain thus 
a rate of profit of 40%. 

Now let us compare this with a capital B composed of 
160 c + 40 V = 200 C, which has the same rate of surplus- 
value, 100%, but which is turned over only once a year. 

The annual product of this capital is the same as that of 
A, namely 160 c + 40 v -|- 40 s. But the 40 s in this case 
are to be calculated on an advance of capital amounting to 
200, so that the rate of profit of B is only 20%, or one-half 
that of A. 

We find, then, that with capitals with equal percentages of 
composition, equal rates of surplus-value, and equal working 
days, the rates of profit are proportioned inversely as their 
periods of turn-over. If either the composition, or the rates 
of surplus-value, or the working day, or the wages, are un- 
equal in the two compared cases, then other differences are 
naturally produced in the rates of profit. But these are not 
directly dependent on the turn-over, and do not concern us at 
this point. They have already been discussed in chapter III. 

The direct effect of a reduced period of turn-over on the 
production of surplus-value, and consequently of profit, con- 
sists in the increased effectiveness given thereby to the vari- 
able portion of capital, as shown in volume II, chapter XVI, 
The Turn-Over of Variable Capital. It was demonstrated in 
that chapter that a variable capital of 500, which is turned 
over ten times per year, produces during this time as much 
surplus-value as a variable capital of 5,000 with the same 



88 Capitalist Production. 

rate of surplus-value aud the same wages, turned over once a, '; 
year. 

Take a capital (I) consisting of 10,000 fixed capital, with 
an annual wear and tear of 10%, or 1,000, furthermore of : 
500 circulating constant and 500 variable capital. Let the 
rate of surplus-value be 100%, and let the variable capital be 
turned over ten times per year. For the sake of simplicity 
we assume in all following examples that the circulating con- 
stant capital is turned over in the same time as the variable, 
which is generally the case in practice. Then the product of 
one such period of turn-over will be 

100 c (wear) + 500 c + 500 v -f 500 s =, 1,600. 
And the product of one entire year, with ten such turn-overs, 
will be 

1,000 c (w^ear) + 5,000 c + 5,000 v + 5,000 s =, 16,000. 
Then C is 11,000, s is 5,000, p' is^^^^, or 45i^%. 

Now let us take another capital (II), composed of 9,000 
fixed capital, with an annual wear and tear of 1,000, circu- 
lating constant capital 1,000, variable capital 1,000, rate of 
surplus-value 100%, number of annual turn-overs of variable 
capital 5. Then the product of each one of these turn-overs ' 
of the variable capital will be 

200 c (wear) + 1,000 c f 1,000 v -f 1,000 s =. 3,200. 
And the annual product (oi all five turr-overs) will be 

1,000 c (wear) + 5,000 c + 5,000 v + 5,000 s = 16,000. 
Then C is 11,000, s is 5,000, and p' h^^^, or 45 y^y %. 

Take furthermore a third capital (III) with no fixed capi- 
tal, 6,000 circulating constant capital, and 5,000 variable cap- 
ital. Let the rate of surplus-value be 100%. jind let there be 
one turn-over per year. Then the total product )f one year is 

6,000 c + 5,000 V + 5,000 s = 16,000. 
C is 11,000, s is 5,000, and p' is-^^VV. or 45^^%. 

In other words, we have in all three of these cases the same 
annual mass of surplus-value, namely 5,000, and since the 
total capital is likewise the same in all three cases, namely 
11,000, the rate of profit is also the same, namely 45yy%. 

But now let us assume that capital (I) has only 5 instead 



Effect of Turn-Over on Rate of Profit. 89 

of 10 turn-overs of its variable capital per year. In that 
case the outcome is different. The product of one turn-over 
is then 200 c (wear) + 500 c + 500 v + 500 s = 1,700. 
And the product of one year is 

1,000 c (wear) -f 2,500 c -f 2,500 v + 2,500 s = 8,500. 
C is 11,000, s is 2,500, p' is yVAV or 22y\%. The rate of 
profit has fallen by one-half, because the time of turn-over has 
been doubled. 

The amount of surplus-value appropriated during one year 
is therefore equal to the mass of surplus-value appropriated 
during one turn-over of the variable capital multiplied by the 
number of such turn-overs per year. If we call the surplus- 
value, or profit, appropriated during one year S, the surplus- 
value approjjriated during one period of turn-over of the vari- 
able capital s, the number of turn-overs of the variable capi- 
tal in one year n, then S = sn, and the annual rate of sur- 
plus-value S' = s'n, as demonstrated in Volume II, chapter 
XVI, I. 

It is understood that the foraiula p' = s' -^ = s' ^ is cor- 
rect only so long as the v of the numerator is the same as that 
of the denominator. In the denominator v stands for the en- 
tire portion of the total capital used on an average as variable 
capital for the payment of wages. In the numerator, v is de- 
termined in the first place by the fact that a certain amount 
of surplus-value s is produced and appropriated by it. The 
proportion of this surplus-value to the variable capital, -^, 
constitutes the rate of surplus-value. It is only in this way 
that the formula p' = ^ is transformed into p' = s' ^. 
Now the V of the numerator is more definitely described by 
stating that it must be equal to the v of the denominator, that 
is to say equal to the entire variable capital of C. In other 
words, the equation p' = -^ can be transformed into the equa- 
tion p' = s' ^ only in the case that s stands for the surplus- 
value produced in one turn-over of the variable capital. If s 
stands for only a portion of this surplus-value, then s = sV 
is still correct, but this v is then smaller than the v in C ^ 
c -|- V, because less than the entire variable capital has been 



90 Capitalist Production. 

employed in the payment of wages. On the other hand, if 
s stands for more than the surplus-value of one turn-over of 
V, then a portion of this v, or perhaps the whole, serves twice, 
namely in the first and in the second turn-over, and even- 
tually it may serve in the subsequent turn-overs. The v 
which produces the surplus-value, and which represents the 
sum of all paid wages, is then greater than the v in c -f- v and 
the calculation becomes wrong. 

In order that the formula for the annual rate of profit may 
be exact, we must substitute the annual rate of surplus-value 
for the simple rate of surplus-value, we must substitute S' or 
s'n for s'. In other words, we must multiply the rate of 
surplus-value, s', or, what amounts to the same, the variable 
capital v contained in C, with n, the number of turn-overs of 
this variable capital in one year. Thus we obtain p' = 
s'n-^, which is the formula for the calculation of the annual 
rate of profit. 

In most cases the capitalist himself does not know the 
amount of variable capital invested in his business. We have 
seen in chapter VIII of volume II, and shall see further along, 
that the only distinction which forces itself upon the capi- 
talist within his capital is that of fixed and circulating capi- 
tal. From the cash-box containing the money-part of the cir- 
culating capital in his hands, so far as it is not deposited in a 
bank, he takes the money to pay wages, and from the same 
cash-box he takes the money for raw and auxiliary materials. 
And he credits both expenditures to the same cash account. 
And even if he should keep a separate account for wages, it 
would show at the end of the year the amounts paid out for 
wages, that is vn, but not the variable capital v itself. In 
order to ascertain this, he would have to make a special cal- 
culation, of which we propose to give an illustration. 

We select for this purpose the cotton spinnery of 10,000 
mule spindles described in volume I. We assume that the 
data there given for one week of April, 1871, are in force 
during the whole year. The fixed capital incorporated in the 
machinery was valued at 10,000 p.st. The circulating capi- 
tal was not given. We assume it to have been 2,500 p.st. 



Effect of Turn-Over on Rate of Profit. 91 

This is a rather high estimate, but it is justified by the as- 
sumption, which we must always make in this discussion, that 
no credit was in force, in other words, no permanent or tem- 
porary employment of other people's capital. The value of 
the weekly product was composed of 20 p.st. for wear of ma- 
chinery, 358 p.st. of circulating constant capital (rent 6 p.st., 
cotton 342 p.st., coal, gas, oil, 10 p.st.), 52 p.st. of variable 
capital paid out for wages, and 80 p.st. of surplus-value. The 
formula was, therefore 

20 c (wear) + 358 c -f 52 v + 80 s = 510. 

The weekly advance of circulating capital consisted there- 
fore of 358 c + 52 V = 410, and its percentages of composi- 
tion were 87.3 c + 12.7 v. Calculating the entire circulating 
capital of 2,500 p.st., on this basis, we obtain 2,182 p.st. of 
constant and 318 p.st. of variable capital. Since the total ex- 
penditure for wages in one year was 52 times 52 p.st., or 
2,704 p.st., it follows that the variable capital of 318 p.st. was 
turned over almost exactly 83^ times in one year. The rate of 
surplus-value was ^, or 153|^%. We calculate the rate of 
profit from these elements by inserting the above values in the 
formula p' = s'n-^. Since s' is 153i^, n is 83^, v is 318, and 
C is 12,500, we have 

p' = 153li X 83^ X TWO = 33.27%. 

We test this result by means of the simple formula p' = ■%. 
The total surplus-value or profit, of one year amounts to 52 
times 80 p.st., or 4,160 p.st. Dividing this by the total capi- 
tal of 12,500, we obtain 33.28%, or almost the identical re- 
sult. This is an abnormally high rate of profit, due to the 
extraordinarily favorable conditions of the moment (very low 
prices of cotton and very high prices of yarn). In reality 
this rate was certainly not maintained throughout the year. 

The term s'n in the formula p' = s'n ^ stands for the same 
thing which was called the annual rate of surplus-value in vol- 
ume II. In the above case it is 153i|% multiplied by 83^, 
or in exact figures 1,307^3%. A certain brave soul was 
shocked to the point of speechlessness over the abnormity of 
an annual rate of profit of 1,000%, which had been used as 



92 Capitalist Production. 

ail illustration in that volume. Perhaps he will now settle 
down peacefully and contemplate this annual rate of surplus- 
value of more tlian 1,300% taken from the practical life of 
Manchester. In times of greatest prosperity, such as we have 
not seen for a long time, a similar rate is by no means rare. 

By the way, this is an illustration of the actual composi- 
tion of caj)ital in modern great industry. The total capital 
is divided into 12,182 p.st. of constant and 318 p.st. of vari- 
able capital, a total of 12,500 p.st. In percentages this is 
97| c + 2| V = 100 C. Only one-fortieth of the total capital 
serves for the payment of wages, but it is turned over eight 
times during the year. 

Since very few capitalists take the trouble of making simi- 
lar calculations with reference to their own business, the sci- 
ence of statistics is almost completely silent regarding the 
proportion of the constant portion of the total social capital 
to its variable portion. Only the American Census gives what 
is possible under modem conditions, namely the amount of 
wages paid in each line of business and the profits realized. 
These data are, of course, very doubtful, because they are 
based on uncontrollable statements of the capitalists, but they 
are nevertheless very valuable, and the only records available 
on this subject. In Europe we are far too delicate to expect 
such revelations from our great capitalists. — F. E.] 



CHAPTER V. 



ECONOMIES IN THE EMPI-OYMENT OF CONSTANT CAPITAL. 

I. General Economies. 

The increase of absolute surplus-value, or the prolongation 
of surj3lus-labor and thus of the working day, while the vari- 
able capital remains the same and employs the same number 
of laborers at the same nominal wages, no matter whether 
overtime is paid for or not, reduces relatively the value of 
the constant capital as compared to the total and the varia- 



Economies in Employment of Constant Capital. 93 

ble capital, and thereby increases the rate of profit even 
aside from the growth and mass of surplus-value and a possibly 
rising rate of surplus-value. The volume of the fixed portion 
of constant capital, such as factory buildings, machinery, etc., 
remains the same, no matter whether they serve for 16 or for 
12 hours in the labor-process. A prolongation of the working 
day does not require any new expenditures for this most ex- 
pensive portion of the constant capital. Furthermore, the 
value of the fixed capital is thereby reproduced in a smaller 
number of periods of turn-over, so that the time for which it 
must be advanced in order to make a certain profit is abbre- 
viated. A prolongation of the working day therefore increases 
the profit, even if overtime is paid, or even if it is paid bet- 
ter, up to a certain limit, than the normal hours of labor. 
The ever more pressing necessity for the increase of fixed 
capital in modern industry was therefore one of the main 
reasons which induced profit-loving capitalists to prolong the 
working day.^^ 

The same conditions do not obtain if the working day is 
constant. In that case it is necessary either to increase the 
number of laborers and with them to a certain extent the mass 
of fixed capital (buildings, machinery, etc.), in order to ex- 
ploit a greater quantity of labor (for we leave aside the ques- 
tion of deductions from wages or depression of wages below 
their normal level), or, if the intensity of labor and the pro- 
ductivity of labor are to be augmented and more relative sur- 
plus-value produced, the quantity of the circulating portion 
of constant capital increases in those lines which use raw ma- 
terials, since more raw material is worked up within a certain 
time. And in the second place, the mass of machinery set in 
motion by the same number of laborers also increases, in other 
words, both portions of constant capital increase. An in- 
crease in surplus-value, then, is accompanied by a growth of 
the constant capital, the growing exploitation of labor goes 
hand in hand with a heightened expenditure of the means of 

" Since in all factories a very large amount of fixed capital is invested in 
buildings and machinery, the gains will be so much larger the greater the number 
of hours during which this machinery can be kept employed." (Reports of Fac- 
tory Inspectors, October 31, 1858, p. 8.) 



94 Capitalist Production. 

production by which labor is exploited, in other words, a 
greater investment of capital. The rate of profit is therefore 
reduced on one side while it increases on the other. 

Quite a number of running expenses remain almost or en- 
tirely the same, whether the working day is long or short. 
The cost of supervision is smaller for 500 working men during 
18 working hours than for 750 working men during 12 work- 
ing hours. "The running expenditures of a factory at ten 
hours of labor are almost as high as at twelve hours." (Report 
of Factory Inspectors, October, 1848, page 37.) State and mu- 
nicipal taxes, fire insurance, wages of various permanent em- 
ployes, depreciation of machinery, and various other expenses 
of a factory, run on just the same, whether the working time 
is long or short. To the extent that production decreases, 
these expenses rise as compared to the profit. (Reports of 
Factory Inspectors, October, 1862, page 19.) 

The period in which the value of machinery and of other 
components of fixed capital is reproduced is practically de- 
termined, not by the mere duration of time, but by the dura- 
tion of the entire labor-process during which it serves 
and wears out. If the laborers must work 18 hours instead of 
12, it makes a difference of three days per week, so that one 
week is stretched into one and a half, and two years into three. 
If this overtime is not paid for, then the laborers supply the 
capitalists not only with the normal surplus-labor without re- 
ceiving an equivalent, but also give one week out of every 
three, and one year out of every three, for nothing. In this 
way the reproduction of the value of the machinery is speeded 
up by 50% and accomplished in two-thirds of the time which 
would be ordinarily required. 

We start in this analysis, and in that of the fluctuations of i 
the prices of raw materials (chapter VI), from the assump- 
tion that the mass and rate of surplus-value are given quan- 
tities, in order to avoid useless complications. 

We have already shown in our presentation of co-operation, 
of division of labor and machinery, that economies in the con- 
ditions of production, such as are found in production on a . 
large scale, are mainly due to the fact that these conditions | 



I 



Economies in Employment of Constant Capital. 95 

are social ones growing out of the combination of labor-proc- 
esses. The means of production are worked up by the aggre- 
gate laborer, a co-operation of many laborers on an immense 
scale, instead of by laborers operating in a disconnected way 
or co-operating at best on a small scale. In a large factory 
with one or two central motors the cost of these motors does 
not increase at the same rate as their horse-powers and their 
resulting extension of activity. The cost of transmission of 
power does not grow at the same rate as the number of work- 
ing machines set in motion by it. The frame of any indi- 
vidual machine does not become dearer at the same rate as 
the number of tools which it employs as its organs. And so 
forth. The concentration of means of production furthermore 
saves buildings of various sorts, not only for actual working 
rooms, but also for storage sheds, etc. It is the same with 
expenses for fuel, light, etc. Other conditions of production 
remain the same, whether used by many or by few. 

This entire line of economies arising from the concentra- 
tion of means of production and their use on a large scale has 
for its fundamental basis the accumulation and co-operation 
of working people, the social combination of labor. Hence 
it has its source quite as much in the social nature of labor as 
the surplus-value considered individually has its source in 
the surplus-labor of the individual laborer. Even the con- 
tinual improvements possible and necessary in this line are due 
solely to the social experiences and observations made in pro- 
duction on a large scale through the combination of social 
labor. 

The same is true of the second great branch of economies 
in the conditions of production. We refer to the reconversion 
of the excrements of production, the so-called offal, into new 
elements of production, either of the same, or of some other 
line of industry; the processes by which these so-called excre- 
ments are thrown back into the cycle of production and con- 
sequently of consumption, whether productive or individual. 
This line of economies, which we shall examine more closely 
later on, is likewise the result of social labor on a large scale. 
It is the abundance of these excrements due to large scale pro- 



96 Capitalist Production. 

duction which renders them available for commerce and turns 
them into new elements of production. It is only as excre- 
ments of combined production on a large scale that they be- 
come valuable for the jDroductive process as bearers of new 
exchange-values. These excrements, aside from the services 
which they perform as new elements of production, reduce the 
cost of raw material to the extent that they are saleable. For 
a normal loss is always calculated as a part of the cost of raw 
material, namely the quantity ordinarily wasted in its con- 
sumption. The reduction of the cost of this portion of con- 
stant capital increases to that extent the rate of profit, assum- 
ing the amount of the variable capital and the rate of surplus- 
value to be given quantities. 

If the surplus-value is given, then the rate of profit can be 
increased only by a reduction of the value of the constant cap- 
ital required for the production of commodities. To the ex- 
tent that the constant capital enters into the production of 
commodities, it is not its exchange-value, but its use-value, 
which is taken into consideration. The quantity of labor 
which the flax can absorb in a spinnery does not depend on 
its exchange-value, but on its quantity, assuming the degree 
of productivity of labor, that is to say, the stage of technical 
development, to be given. In like manner the assistance ren- 
dered by a machine to, say, three laborers does not depend on 
its exchange-value, but on its use-value as a machine. In one 
stage of technical development a bad machine may be expen- 
sive, in another a good machine may be cheap. 

The increased profit gathered by a capitalist through the 
cheapening of such things as cotton, spinning machinery, etc., 
is the result of a heightened productivity of labor. Of course, 
this improvement was not introduced in the spinnery, but in 
the cultivation of cotton and the building of machinery. 
There it required a smaller expense for the fundamentals of 
production in order to materialize a certain quantity of labor 
and secure possession of a certain amount of surplus-labor. 
This means a reduction of the expense required for the appro- 
priation of a certain quantity of surplus^labor. 

We mentioned in the foregoing the savings realized in the 



Economies in Employment of Constant Capital. 97 

process of production by the co-operative use of the means of 
production by socially combined laborers. Other economies, 
resulting in the expenditure of constant capital from the 
shortening of the time of circulation (a result brought about 
largely by the development of the means of communication) 
will be discussed later on. At this point we shall mention the 
economies due to progressive improvements of machinery, 
namely 1) of its substance, such as iron for wood; 2) the 
cheapening of machinery by the improvement of methods of 
manufacture, so that the value of the fixed portion of constant 
capital, while continually increasing with the development of 
labor on a large scale, does not grow at the same rate; ^^ 3) 
the special improvements enabling the existing machinery to 
work more cheaply and effectively, for instance, improvements 
of steam boilers, etc., which will be further discussed later on; 
4) the reduction of waste through better machinery. 

Whatever reduces the wear of machinery, and of the fixed 
capital in general, for any given period of production, cheapens 
not only the individual commodity, seeing that every indi- 
vidual commodity reproduces in its price its share of this wear 
and tear, but reduces also the aliquot portion of the invested 
capital for this period. Repair work, etc., to the extent that 
it becomes necessary, is figured in with the original cost of the 
machinery. A reduction of the expense for repairs, due to a 
greater durability of the machinery, reduces the price of this 
machinery correspondingly. 

It may be said also of these economies, at least of most of 
them, that they are possible only through the combination of 
labor and are often not realized until production is carried 
forward on a still larger scale, so that they are due to an even 
greater combination of laborers in the direct process of pro- 
duction. 

On the other hand, the development of the productive power 
of labor in any one line of production, for instance in the 
production of iron, coal, machinery, buildings, etc., which may 
be in part connected with improvements on the field of in- 
tellectual production, especially in natural science and its 

'- See Ure on the progress in factory construction. 
Q 



98 Capitalist Production. 

practical applicatiou, appears to be the premise for a reduo- 
tion of the value, and consequently of the cost, of means of 
production in other lines of industry, for instance in the tex- 
tile business or in agriculture. This follows naturally fronj 
the fact that a commodity, which issues as a product from a 
certain line of production, enters into another as a means of 
production. Its deamess or cheapness depends on the pro- 
ductivity of labor in that line of production from which iti 
issues as a product. Thus it is at the same time a basic con- 
dition, not only for the cheapening of commodities into whose 
production it enters as- a means of production, but also for 
the reduction of the value of constant capital, whose element 
it becomes, and thereby for the increase of the rate of profit. 

The characteristic feature of this kind of economies in the 
constant capital due to the progressive development of indus- 
try is that the rise in the rate of profit in one line of industry 
is the result of the increase of the productive power of labor 
in another. That which the capitalist appropriates in this 
case is once more a gain which is the product of social labor, 
although not a product of the laborers directly exploited by 
him. Such a development of the productive power is traceable 
in the last instance to the social nature of the labor engaged 
in production; to the division of labor in society; to the de- 
velopment of intellectual labor, especially of the natural sci- 
ences. The capitalist thus appropriates the advantages of the 
entire system of the division of social labor. It is the develop- 
ment of the productive power of labor in its exterior depart- 
ment, in that department which supplies it with means of 
production, which relatively lowers tlie value of the con- 
stant capital employed by the capitalist and consequently 
raises the rate of profit. 

Another raise in the rate of profit is produced, not by econ- 
omies in the labor creating the constant capital, but by econo- 
mies in the operation of this capital itself. On one hand, the 
concentration of laborers, and their co-operation on a large 
scale, saves constant capital. The same buildings, appliances 
for fuel and light, etc., cost relatively less for large scale than 
for small scale production. The same is true of power and 



Economics in Employment of Constant Capital. 99 

working inacliinery. Although their absolute value increases, 
it falls relatively in comparison to the growing extension of 
production and the magnitude of the variable capital, or to 
the mass of labor-power set in motion. The economy realized 
by a certain capital within its own line of production is first 
and foremost an economy in labor, that is to say, a reduction 
of the paid labor of its own laborers. The previously men- 
tioned economy is distingaiished from this one by the fact that 
it accomplished the greatest possible appropriation of the un- 
paid labor in other lines in the most economical way, that is 
to say, with as little expense as a certain scale of production 
will pennit. To the extent that this economy does not rest 
on the previously mentioned exploitation of the productivity 
of the social labor employed in the production of constant cap- 
tal, or in an economy arising from the operation of the con- 
stant capital itself, it is due either directly to the co-operation 
and social nature of labor within a certain line of production, 
or to the production of machinery, etc., on a scale in which its 
value does not grow at the same rate as its use-value. 

Two points must be kept in view here : First, if the value 
of c were zero, then p' would be equal to s', and the rate of 
profit would be at its maximum. In the second place, the 
most important thing for the direct exploitation of labor is not 
the exchange-value of the employed means of exploitation, 
whether they be iixed capital, raw materials or auxiliary sub- 
stances. In so far as they serve as means to absorb labor, as 
media in and by which labor and surplus-labor are material- 
ized, the exchange-value of buildings, raw materials, etc., is 
quite immaterial. That which is ultimately essential is on the 
one hand tlie quantity of them technically required for their 
combination with a certain quantity of living labor, and on the 
other hand their fitness ; in other words, not only the ma- 
chinery, but also the raw and auxiliary materials must be good. 
The good quality of the raw material determines in part the 
rate of profit. Good material leaves less waste. A smaller 
mass of raw materials is then needed for the absorption of 
til- same quantity of labor. The resistance to be overcome 
by the working machine is also less. This affects in part even 



100 Capitalist Production. 

the surplus-value and the rate of surplus-value. The laborer 
consumes more time with bad raw materials than he would 
with the same quantity of good material. Wages remaining 
the same, this implies a reduction of the surplus-labor. Fur- 
thermore this affects materially the reproduction and accumu- 
lation of capital which depend more on the productivity than 
on the mass of labor employed, as shown in volume I. 

The fanatic hankering of the capitalist after economies in 
means of production is therefore intelligible. That nothing 
is lost or wasted, that the means of production are consumed 
only in the manner required by production itself, depends 
partly on the skill and intelligence of the laborers, partly on 
the discipline exerted over them by the capitalist. This dis- 
cipline will become superfluous under a social system in which 
the laborers work for their own account, as it has already be- 
come practically superfluous in piece-work. This fanatic 
love of the capitalist for profit is expressed, on the other 
hand, by the adulteration of the elements of production, which 
is one of the principal means of reducing the value of the 
constant capital in comparison with the variable capital, and 
thus of raising the rate of profit. In addition to this, the 
sale of these elements of production above their value, so far 
as this value reappears in the product, plays a considerable 
role in cheating. This practice plays an essential part par- 
ticularly in German industry, whose maxim seems to be: 
People will surely appreciate getting first good samples and 
then inferior goods from us. However, these matters belong 
in a discussion of competition, and do not further concern us 
here. 

It should be noted that this raising of the rate of profit 
by means of a depreciation in the value of the constant capi- 
tal, in other words, by a reduction of its expensiveness, is 
entirely independent of the fact whether the line of indus- 
try, in which this takes place, produces articles of luxury, 
necessities of life for the individual consumption of laborers, 
or means of production. This circumstance would be of ma- 
terial importance only in the case that it would be a question 
of the rate of surplus-value, which depends essentially on the 



Economies in Employment of Constant Capital. loi 

value of labor-power, and consequently on the value of the 
customary necessities of the laborer. But in the present case 
the surplus-value and the rate of surplus-value have been as- 
sumed as given. The proportion of the surplus-value to the 
total capital, which determines the rate of profit, depends 
under these circumstances exclusively on the value of the con- 
stant capital, and in no way on the use-value of the elements 
of which this capital is composed. 

A relative cheapening of the means of production does not, 
of course, exclude the absolute increase of their aggregate 
values. For the absolute scope of their application grows 
extraordinarily with the development of the productive power 
of labor and the parallel extension of the scale of production. 
The economies in the use of constant capital, from whatever 
point of view they may be considered, are the result, either 
exclusively of the fact that the means of production serve as 
co-operative materials for the combined laborers, so that the 
resulting economies appear as products of the social nature of 
directly productive labor itself; or, in part, of the fact that 
the productivity of labor is developed in those spheres which 
supply capital with means of production, and in that case 
these economies present themselves once more as products of 
the development of the productive forces of social labor, pro- 
vided only that the total labor is compared with the total cap- 
ital, and not simply with the laborers employed by the indi- 
vidual capitalist owning this particular constant capital. The 
difference in this case is merely that the capitalist takes ad- 
vantage not only of the productivity of labor in his own es- 
tablishment, but also of that in other establishments. Never- 
theless, the capitalist presumes that the economies of his con- 
stant capital are wholly independent of his laborers and have 
nothing at all to do with them. On the other hand, the capi- 
talist is always well aware that the laborer has something to 
do with the fact whether the employer buys much or little 
labor with the same amount of money (for this is the form in 
which this transaction between the laborer and the capitalist 
appears in the mind of the latter). The economies realized 
in the application of constant capital, this method of getting 



I02 Capitalist Production. 

a certain result out of the means of production with the small- 
est possible expense, is regarded more than any other power 
inherent in labor as a peculiar gift of capital and as a method 
characteristic of the capitalist mode of production. 

This conception is so much less surprising as it seems to 
be borne out by facts. For the conditions of capitalist pro- 
duction conceal the internal connection of things by the utter 
indifference, alienation, and expropriation practiced against 
the laborer in the matter of the material means in which his 
labor must be incorporated. 

In the first place, the means of production constituting the 
constant capital represent only the money of the capitalist 
(just as the body of the Koman debtor represented the money 
of his creditor, according to Linguet). The laborer comes in 
contact with them only in the direct process of production, in 
which he handles them as use-values of production, as instru- 
ments of labor and materials of production. The increase or 
decrease of the value of these things are matters which affect 
his relation to the capitalist no more than the fact that he 
may be working up either copper or iron. Occasionally, how- 
ever, the capitalist likes to profess a different conception of the 
matter, as we shall indicate later on. He does so whenever 
the means of production become dearer and thereby reduce his. 
rate of profit. 

In the second place, so far as these means of production in 
the capitalist process of labor are at the same time means of 
exploiting labor, the laborer is no more concerned in the rela-^ 
tive dearness or cheapness of these means of exploitation than 
a horse is concerned in the dearness or cheapness of the bit 
and bridle by which it is steered. 

In the third place, we have seen previously that the social 
nature of labor, the combination of the labor of a certain 
individual laborer with that of other laborers for a common 
purpose, stands opposed to that laborer and his comrades as a 
foreign power, as the property of a stranger which he would 
not care particularly to save if he were not compelled to econo- 
mize with it. It is entirely different in the factories owned 
by the laborers themselves, for instance, in Rochdale. 



Economics in Employment of Constant Capital. 103 

It requires hardly any special mention, then, that the gen- 
eral interconnection of social labor, so far as it expresses the 
productivity of labor in one line of industry by a cheapening 
and improvement of the means of production in another line, 
and thereby a raising of the rate of profit, affects the laborers 
as a matter foreign to them and concerning only the capital- 
ists, since they are the ones Avho buy and own these means of 
production. The fact that the capitalist buys the product of 
the laborers of another line of industry with the product of 
the laborers in his own line, and that he disposes of the prod- 
uct of the laborers of another capitalist by virtue of having 
appropriated the unpaid products of his own laborers, is mer- 
cifully concealed for him by the process of circulation and its 
attending circumstances. 

This state of things is further complicated by the fact that 
these economies in the employment of constant capital assume 
the guise of being due to the peculiar nature of the capitalist 
mode of production, and to the special function of the capi- 
talist in particular. The thirst for profits and the demands 
of competition tend toward the greatest possible cheapening 
of the production of commodities, just as production on a large 
scale first develops in its capitalistic form. 

Capitalist production promotes on the one hand the develop- 
ment of the productive powers of social labor, and on the other 
it enforces economies in the employment of constant capital. 

However, capitalist production does not stop at the aliena- 
tion and expropriation of the laborer, the bearer of living 
labor, from his interest in the economical, that is to say, ra- 
tional and thrifty, use of the material requirements of his 
labor. In conformity with its contradictory and antagonistic 
nature, capitalist production proceeds to add to the economies 
in the use of constant capital, and thus to the means of in- 
creasing the rate of profit, a prodigality in the use of the life 
and health of the laborer himself. 

Since the laborer passes the greater portion of his life in 
the process of production, the conditions of this productive 
process constitute the greater part of the fundamental condi- 
tions of his vital activity, his requirements of life. Econo- 



104 Capitalist Production. 

mies in these requirements constitute a method of raising the 
rate of profit, just as we observed on previous occasions that 
overwork, the transformation of the laborers into laboring 
cattle, constitutes a means of self-expanding capital, of speed- 
ing up the production of surplus- value. Such economies are: 
The overcrowding of narrow and unsanitary rooms with la- 
borers, or, in the language of the capitalist, a saving in build- 
ings; a crowding of dangerous machinery into one and the 
same room without means of protection against this danger; 
a neglect of precautions in productive processes which are dan- 
gerous to health or life, such as mining, etc.; not to mention 
the absence of all provisions to render the process of produc- 
tion human, agreeable, or even bearable, for the laborer. 
From the capitalist point of view, such measures would be 
quite useless and senseless. No matter how economical capi- 
talist production may be in other respects, it is utterly prodi- 
gal with human life. And its saving in one direction is offset 
by a waste in another, owing to the distribution of its products 
through trade and the competitive method. Capitalism loses 
on one side for society what it gains on another for the in- 
dividual capitalist. 

Just as capital endeavors to reduce the direct application 
of living labor to necessary labor, and to abbreviate the labor 
required for the production of any commodity b}^ the exploita- 
tion of the social productiveness of labor and thus to use as 
little living labor as possible, so it has also the tendency to 
apply this minimized labor under the most economical condi- 
tions, that is to say, to reduce the value of the employed con- 
stant capital to its minimum. While the value of commodi- 
ties is determined by the necessary labor-time contained in 
them, not by all of the labor-time incorporated in them, it is 
the capital which gives reality to this determination and at 
the same time reduces continually the labor-time socially neces- 
sary for the production of a certain commodity. The price 
of that commodity is thereby lowered to its minimum, since 
every portion of the labor required for its production is re- 
duced to its minimum. 

It is necessary to make a distinction in the economies real- 



Economies in Employment of Constant Capital. 105 

ized in the employment of constant capital. If the mass, and 
consequently the amount of the value, of the employed capital 
increases, it means primarily a concentration of more capi- 
tal in one hand. Now, it is precisely this greater mass in 
one hand, going hand in hand, as a rule, with an absolute in- 
crease but relative decrease of the number of employed la- 
borers, which permits economies in constant capital. From 
the point of view of the individual capitalist the volume of 
the necessary investment of capital, especially of its fixed por- 
tion, increases. But compared to the mass of the worked-up 
materials and of the exploited labor the value of the invested 
capital relatively decreases. 

This will now be briefly illustrated by a few examples. We 
begin at the end, with economies in the conditions of produc- 
tion which are at the same time the living conditions of the 
laborer. 

II. Economics in the conditions of labor at the expense of 

the laborers. 

Coal Mines. Neglect of the most indispensable Expenditures. 

"Owing to the competition between the proprietors of coal 
mines, expenses are kept down to the minimum required for 
overcoming the most palpable physical difficulties; and owing 
to the competition among the miners, whose numbers generally 
exceed the demand, they are glad to expose themselves to con- 
siderable danger and to the most injurious influences for a 
wage which is little above that of the day laborers in the neigh- 
boring country districts, more especially since mining permits 
them to utilize their children profitably. This double compe- 
tition is fully sufficient ... to effect the operation of 
a large portion of the mines with the most imperfect drainage 
and ventilation; very often with badly built shafts, bad pip- 
ing, incapable machinists, with badly planned and badly con- 
structed galleries and tracks and this causes a destruction of 
life, limb, and health, the statistics of which would present an 
appalling picture." (First Report on Children's Employ- 
ment in Mines and CoUieries, etc., April 21, 1829, page 129.) 



io6 Capitalist Production. 

About 1860, the average of fatal accidents in the English 
collieries amounted to 15 men per week. According to the re- 
port on Coal Mines Accidents (Febraary 0, 1802), the total 
deaths from accidents during the ten years from 1852-01 
amounted to 8,400. But the report itself admits that this 
number is far too low, because in the first years, when the in- 
spectors had just been installed and their districts were far 
too large, a great many accidents and deaths were not reported. 
The very fact that Uie number of accidents has decreased since 
the installation of the inspectors, in spite of their insufficient 
numbers and limited powers, shows the natural tendencies of 
capitalist production. Still the number of the killed is very 
large. These sacrifices of human beings are mostly due to the 
groveling greed of the mine owners. Very often they had only 
one shaft dug, so that there was not only no effective ventila- 
tion but also no escape if this shaft became clogged. 

Looking upon capitalist production in its details, aside from 
the process of circulation and the excrescences of competition, 
we find that it is very economical with materialized labor in- 
corporated in commodities. But it is more than any other 
mode of production prodigal with human lives, with living 
labor, wasting not only blood and flesh, but also nerves and 
brains. Indeed, it is only by dint of the most extravagant 
waste of individual development that human development is 
safeguarded and advanced in that ej^och of history which im- ^^ 
mediately precedes the conscious reorganisation of society, 'm 
Since all the economies here mentioned arise from the social 
nature of labor, it is just this social character of labor which 
causes this waste of the lives and health of the laborers. 
The following question suggested by factory inspector B. 
Baker is characteristic in this respect : " The whole question 
is one for serious consideration, in what way this sacrifice of 
infant life occasioned by congregational labor can be averted ^ " 
(Report Fact., October 1803, page 157.) 

Factories. Under this head belongs the disregard for all 
precautions for the security, comfort, and health of the la- 
borers, also in the factories. A large portion of the bulletins 
of casualties enumerating the wounded and slain of the Indus- 



J 



Economics in Employment of Constant Capital. 107 

trial army belong here (see the annual factory reports). 
Furthermore lack of space, ventilation, etc. 

As late as October, 1855, Leonard Horner complained about 
the resistance of numerous manufacturers against the legal 
requirements concerning protective appliances on horizontal 
shafts, although the dangerous character of these shafts was 
continually proved by accidents, many of them fatal, and al- 
though the appliance for protection against this danger was 
neither expensive nor interfered with the work. (Rep. Fact., 
October, 1855, page 6.) In their resistance against this and 
other legal requirements, the manufacturers are ably seconded 
by the unpaid justices of the peace, who are themselves man- 
ufacturers or their friends, and who render their verdicts ac- 
cordingly. What sort of verdicts those gentlemen rendered 
was revealed by Superior Judge Campbell, who said with ref- 
erence to one of them, against which an appeal Avas made to 
him: " This is not an interpretation of an act of parliament, 
it is simply its abolition." (L. c, page 11.) Horner says in 
the same report that in many factories machinery is started 
up without warning the laborers. Since there is always some- 
thing to look after, even when the machinery is at a stand- 
still, there are always many hands and fingers busy on it, and 
accidents happen continually from the omission of a mere sig- 
nal. (L. c, page 14.) The manufacturers of that period 
had formed a union opposing the factory legislation, the so- 
called " National Association for the Amendment of the Fac- 
tory Laws " in ]\[anchester, which collected, in March, 1855, 
more than 50,000 p.st. by an assessment of 2 shillings per 
horse-power. This sum was to pay for lawsuits of the mem- 
bers of the association against court proceedings instigated by 
factory inspectors, all cases of this kind being fought by the 
union. The issue was to prove that killing is no murder when 
done for profit. The factory inspector for Scotland, Sir John 
Kincaid, relates of a certain firm in Glasgow that it used the 
old iron of its factory to make protective appliances for all 
its machinery, the cost being 9 p.st. 1 shilling. If this firm 
had joined the manufacturers' union, it would have had to 
pay an assessment of 11 p.st. on its 110 horse powers. This 



io8 Capitalist Production, 

would have been more than the cost of all of its protective ap- 
pliances. But the National Association had been organized 
in 1854 for the express purpose of opposing the law which 
prescribed such protection. The manufacturers had paid no 
attention whatever to this law during all the time from 1844 to 
1854. At the instruction of Palmerston the factory inspectors 
then informed the manufacturers that the law would hence- 
forth be enforced. The manufacturers immediate^ founded 
their union. Many of its most prominent members were jus- 
tices of the peace who were supposed to carry out this law. 
When the new IVIinister of the Interior, Sir George Grey, 
offered a compromise, in April, 1855, to the effect that the 
government would be content with practically nominal appli- 
ances for protection, the Association declined even this, with 
indignation. In various lawsuits, the famous engineer 
Thomas Fairbairn permitted the manufacturers to throw the 
weight of his name into the scale in favor of economies and 
in defense of the violated liberty of capital. The chief of fac- 
tory inspectors, Leonard Horner, was persecuted and ma- 
ligned by the manufacturers in every conceivable manner. 

But the manufacturers did not rest until they had obtained 
a writ of the Queen's Bench, which interpreted the Law of 
1844 to the effect that no protective appliances were prescribed 
for horizontal shafts installed more than seven feet above the 
ground. And finally they succeeded in 1856 in securing an 
act of parliament entirely satisfactory to them, by the help of 
the hypocrite Wilson Patten, one of those pious souls whose os- 
tentatious religion is always ready to do dirty work for the 
knights of the money-bag. This act practically deprived the 
laborers of all special protection and referred them to the 
common courts for the recovery of damages in cases of acci- 
dent by machinery (which amounted practically to a mockery, 
on account of the excessive cost of lawsuits). On the other 
hand, this act made it almost impossible for the manufacturers 
to lose a lawsuit, by providing in a very nicely worded clause 
for expert testimony. As a result, the accidents increased 
rapidly. In the six months from May to October, 1858, In- 
spector Baker reported an increase of accidents exceeding that 



Economies in Employment of Constant Capital. 109 

of the preceding six months by 21%. He was of the opinion 
that 36.7% of these accidents might have been avoided. It 
is true, that the number of accidents in 1858 and 1859 was 
considerably below that of 1845 and 1846. It was 29% less, 
although the number of laborers had increased by 20% in 
the industries subject to inspection. But what was the reason 
for this? So far as the moot question was settled in 1865, it 
was due mainly to the introduction of new machinery which 
was provided with protective appliances from the start and 
to which the manufacturer did not object because they re- 
quired no extra expense. A few laborers had also succeeded 
in securing heavy damages for their lost arms and having this 
sentence upheld even by the highest courts. (Rep. Fact., 
April 30, 1861, page 31, and April, 1862, page 17.) 

This may suffice to illustrate the economies in appliances by 
which life and limb of laborers (also children) are to be pro- 
tected against dangers arising in the handling and operating 
of machinery. 

Work in Closed Rooms. It is well known to what extent 
economies of space, and thus of buildings, crowd the laborers 
into narrow rooms. This is intensified by economies in ap- 
pliances for ventilation. These two economies, coupled with 
an increase of the labor time, produce a large increase in the 
diseases of the respiratory organs, and consequently an in- 
crease of mortality. The following illustrations have been 
taken from the Reports on Public Health, 6th report, 1863. 
This report was compiled by Dr. John Simon, well-known 
from our volume I. 

Just as the combination of co-operative labor permits the 
operation of machinery on a large scale, the concentration of 
means of production, and economies in their employment, so 
it is the co-operation of large numbers of laborers in closed 
rooms and under conditions determined by the ease of manu- 
facture, not by the health of the laborer, which is on the one 
hand the source of increased profits for the capitalist and on 
the other the cause of the waste of the lives and health of the 
laborers, unless it is counteracted by a reduction of the hours 
of labor and by special precautions. 



no 



Capitalist Production. 



Dr. Simon formulates the following rule and backs it up 
with abundant statistics: " To the extent that the population 
of a certain district is made dependent upon co-operative labor 
in close rooms, to the same extent, other conditions remaining 
the same, increases the rate of mortality in that district through 
pulmonary diseases." (Page 23.) The cause of this is bad 
ventilation. " And there is probably in all England not a 
single exception from the rule that in every district, which 
has an important industry carried on in closed rooms, the in- 
creased mortality of its laborers suffices to color the mortality 
statistics of the entire district wdtli a decided excess of pul- 
monary diseases." (Page 24.) 

The mortality statistics of industries carried on in closed 
rooms, as examined by the Board of Health in 1860 and 1861, 
show the following facts : The same number of men between 
the ages of 15 and 55, having a rate of 100 deaths from con- 
sumption and other pulmonary diseases in English agricul- 
tural districts, has a rate of 163 deaths from consumption in 
Coventry, 167 in Blackburn and Skipton, 168 in Congleton 
and Bradford, lYl in Leicester, 182 in Leek, 184 in Maccles- 
field, 190 in Bolton, 192 in Nottingham, 193 in Rochdale, 
198 in Derby, 203 in Salford and Ashton-under Lyne, 218 in 
Leeds, 220 in Preston, and 263 in Manchester. (Page 24.) 
The following table gives a still more convincing illustration. 









DEATHS 


FROM PUL- 








MONARY 


DISEASES BE- 








TWEEN THE AGES OF I^ 


DISTRICT. 


MAIN INDUSTRY. 




AND 25, 


PER 


100,000 




MEM 


1 


WOMEN. 


Berkhampstead 


Straw plaiting done 
women 


by 


219 






578 


Leighton Buzzard 


Straw plaiting done 
women 


by 


309 






554 


Newport Pagnell 


Manufacture of laces 
women 


by 


301 






617 


Towcester 


Manufacture of laces 
women 


by 


■239 






577 


Yeovil 


Manufacture of gloves, 


280 






409 




mainly by women 












Leek 


Silk-industry, mainly 
women 


by 


437 






856 


Congleton 


Silk-industry, mainly 
women 


by 


S66 






790 


Macclesfield 


Silk-industry, mainly 
women 


by 


593 






890 


Healthy country district 


Agriculture 




331 






533 



Econoiuics in Employment of Constant Capital, iii 

It shows the deaths from puhiionary diseases separately for 
both sexes, between the ages of 15 to 25, computed on every 
100,000. The districts selected are those in which only the 
women are employed in the industry carried on in closed 
rooms, while the men are employed in all possible lines of 
work. 

In the districts with silk-industries, in which the participa- 
tion of men in factory work is greater, their death-rate is 
also higher. The death rate from consumption, etc., in both 
sexes reveals, according to the report, the atrocious sanitary 
conditions under which a large portion of our silk-industry is 
carried on." And this is the same silk-industry whose manu- 
facturers, boasting of the exceptionally favorable and sanitary 
conditions in their establishments, demanded an exception- 
ally long labor-time for children under 13 years of age, and 
were granted permission in several instances. (Volume I, 
chapter X, 6.) 

'' iSTone of the hitherto investigated industries will have 
presented a worse picture than that given by Dr. Smith of 
tailoring. The work rooms, he says, differ considerably in 
the matter of sanitation ; but nearly all of them are over- 
crowded, badly ventilated, and to a high degree injurious to 
health, . . . Such rooms are necessarily hot, as it is ; but 
if the gas is lighted, for instance during a fog in the daytime, 
or in winter in the evening, the heat rises to 80 or even 90 
degrees Fahrenheit (27 to 33 degrees C.) and causes a drip- 
ping perspiration and a precipitation of vapor on the glass 
panes, so that water is continually trickling down or dropping 
down from the skylight, and the laborers are compelled to 
keep some windows open, although they inevitably catch cold 
thereby. — He gives the following description of 16 of the 
most important shops of the West end of London : The largest 
cubic space alloted in these badly ventilated rooms to one la- 
borer is 270 cubic feet; the smallest is 105 feet, the average 
being 156 feet per man. In a certain shop, which has a gal- 
lery running all around its sides and which receives light only 
from above, from 92 to 100 people are employed and a large 
number of gas jets lighted; the toilets are next door, and the 



112 



Capitalist Production. 



i 



room does not give above 150 cubic feet to each man. In an- 
other shop, which can be called only a dog kennel in a yard 
lighted from above and which can be ventilated only by one 
small window in the roof, from 5 to 6 people work in a room 
of 112 cubic feet per man." And "in these atrocious work 
rooms, described by Dr. Smith, the tailors work generally from 
12 to 13 hours per day, and at certain periods work is con- 
tinued for 14 to 16 hours." (Pages 25, 26, 28.) 



NUMBER OF PEOPLE EM- 
PLOYED. 


LINES OF INDUSTRY AND 
LOCALITY. 


RATE OF MORTALITY 

PER 100,000 BETWEEN 

THE AGES OF 




Agriculture, England and 

Wales 
Tailoring, London 

Typesetters and PrinterL, 
London 


25-35 


35-45 


45-55 


958.26s 

22,301 men and 
12,377 women 

13.803 


743 
9S8 

894 


80s 
1262 

1747 


1 195 
2093 

2367 



(Page 30.) It must be noted, and has in fact been noted 
by John Simon, the chief of the Medical Department, who is- 
sued the report, that the mortality of the tailors, typesetters, 
and printers of London, for the ages of 25 to 35 years, has 
been reported too low, because the London employers in both 
lines have a large number of young people (probably up to 
30 years of age) from the country engaged as apprentices and 
"improvers," that is to say, men who are being trained. 
These increase the number of employed on which the death- 
rates of London are computed. But they do not contribute 
at the same rate to the number of deaths in London, because 
their stay there is only temporary. If they get sick during 
this period, they return to their homes in the country to get 
well, and if they die there, they are registered in their own 
district. This fact affects the earlier ages still more and ren- 
ders the death-rate figures of London for these ages completely 
valueless as standards of industrial violations of sanitary laws. 
(Page 30.) 

The case of the typesetters is similar to that of the tailors. 
In addition to lack of ventilation, poisoned air, etc., their con- 
dition is aggravated by night-work. Their regular working 
time lasts from 12 to 13 hours, sometimes from 15 to 16. 



Economies in Employment of Constant Capitat. 113 

"Great heat and suffocating air as soon as the gas is lighted. 
. . . It is not a rare occurrence that the fumes of a foundry, 
or the smell of machinery or of cesspools, rise from lower floors 
and aggravate the evils of the upper floors. The hot air of the 
lower rooms heats the upper ones by warming the floors, and 
if the rooms are low and much gas is burned in them, it is a 
great nuisance. It is still worse in places where steam engines 
are installed in the lower rooms and fill the whole house with 
undesirable heat. ... In general it may be said that the 
ventilation is defective throughout and totally insuflftcient to 
remove the heat and the products of combustion of the gas 
after sundown, and that conditions in many shops, especially 
if they were formerly living rooms, are most deplorable." In 
some shops, particularly for weekly papers, where boys of 12 
to 16 years are also employed, work is carried on almost unin- 
terruptedly for two days and one night; while in other print- 
ing shops, which make a specialty of job work, the laborer 
does not get a rest even on Sunday so that his days of work 
are 7 instead of 6 per week. (Page 26, 28.) 

The milliners and dress makers occupied our attention also 
in volume I, chapter X, 3, so far as overwork was concerned. 
Their work rooms are described in the present report by Dr. 
Ord. Even if they are better during the day, they become 
overheated, foul, and unhealthy during the hours in which gas 
is burned. Dr. Ord found in 34 shops of the better sort that 
the average number of cubic feet per worker was as follows: 
"In four cases more than 500; in four other cases 400-500; 
in five cases 200-250; in four cases 150-200; and finally in. 
nine cases only 100-150. Even the most favorable of these 
cases barely suflEices for continued work, when the room is not 
perfectly ventilated. . . . Even with good ventilation the 
workshops become very hot and stuffy after dark on account 
of the many gas jets needed." And here follows a remark of 
Dr. Ord concerning one of the minor w^orkshops operated for 
the account of a middleman: "One room, containing 1,280 
cubic feet; persons present, 14; space for every person, 91.5 
cubic feet. The girls looked haggard and neglected. There 
wages were said to be from 7 to 15 sh. per week, aside from 



114 Capitalist Production. 

tea. . . . The liours of labor from 8 a, m. to 8 p. m. 
The small room, in which these 14 persons were crowded to- 
gether, was badly ventilated. There were two movable win- 
dows and a fireplace, which was, however, closed. There were 
no special appliances of any kind for ventilation." (Page 
27). 

The same report states Avith reference to the overwork of 
the milliners and dress makers : " The overworking of yonng 
women in fashionable millinery stores prevails only for about 
4 months in that monstrous degree which lias elicited on many 
occasions the momentary surprise and indignation of the pub- 
lic. But during these months work is as a rule continued in 
the shop for fully 14 hours per day, and on accumulated rush- 
orders for days from IT to 18 hours." In other seasons work 
in the shop is carried on probably for 10 to 14 hours ; those 
working at home are regularly engaged for 12 to 13 hours. 
In the making of ladies' cloaks, capes, shirts, etc., including 
work with a sewing machine, the hours passed in the common 
work room are fewer, generally not more than 10 to 12, but, 
says Dr. Ord, " the regular hours of labor in certain houses, 
at various times, are subject to considerable extension by 
means of extra paid overtime, and in others work is taken 
home in order to be finished after the regular working tiny\ 
We may add that either one of these methods of over-work 
is often compulsory." (Page 28). John Simons remarks 
in a footnote to this page: "Mr. Redcliffe, the secretary of 
the Epidemiological Society, who had especially frequent op- 
portunities to examine the health of milliners and dressmakers ' 
of the first firms, found among 20 girls who said of themselves 
that they were " quite well " only one in good health ; the 
others showed difi"erent degrees of physical exhaustion, nerv- 
ous debility, and numerous functional troubles arising there- 
from. He names as causes, in the first instance, the length 
of the working hours, which he estimates at a minimum of 12 
hours per day even in the dull season, and secondly, ' over- 
crowding and bad ventilation of workrooms, air poisoned by 
gas lights, insufficient or bad food, and lack of provision foi 
domestic comfort.' " 



Economies in Employment of Constant Capital. 115 

The conclusion at which the chief of the English Board of 
Health arrived, is that " it is practically impossible for la- 
borers to insist on that which is theoretically tlieir first san- 
itary rig'lit: the right of having their common labor freed from 
all needless conditions injurious to health, so far as may lie 
in the power of their employer, and at his expense, whatever 
may be the work to be accomplished by them for their em- 
ployer. And while the laborers themselves are actually not 
in a position to enforce this sanitary justice, neither can they 
expect any effective assistance from the officials responsible 
for the enforcement of the Nuisance Removal Acts, in sj^ite 
of the presumable intention of the legislator." (Page 29.) — 
" There will no doubt be some small technical difficulties in 
the way of determining the lowest limit where the employers 
shall be subject to regulation. But ... in principle 
the ciaim to the protection of health is universal. And in the 
interest of myriads of working men and working women, whose 
lives are needlessly stunted and shortened by the infinite 
phvoJcal ills caused by their occupations, I venture to express 
tlie hope that the sanitary conditions of labor will just as uni- 
versally be placed under fitting legal protection ; at least suffi- 
ciently to safeguard an effective ventilation of all closed work 
rooms, and to restrict as much as possible the particular un- 
sanitary influences naturally inherent in every dangerous line 
of industry." (Page 63.) 

III. Economies in the Generation of Power, Transmission 

of Power, and Buildings. 
•In his report for October, 1852, L. Horner quotes a letter 
of the famous engineer James I^asmyth of Patricrofit, the in- 
ventor of the steam hammer, which contains substantially the 
following statements. 

The public is little acquainted with the immense increase 
of motive power obtained through such changes of system and 
improvements (of steam engines) as he is mentioning. The 
machine power of the district of Lancashire was for almost 
forty years under the pressure of timid and prejudiced tradi- 
tions. But now the engineers have been happily emancipated. 



ii6 Capitalist Production. 

During the last 15 years, but particularly in the course of the 
last 4 years (since 1848) a few important changes have taken 
place in the operation of condense steam engines. The re- 
sult was that the same machines accomplished far more work, 
and that the consumption of coal was considerably decreased 
at the same time. For many years, since the introduction of 
steam power in the factories of this district, the velocity which 
was considered safe for condense steam engines, was about 220 
feet of piston lift per minute, that is to say, a machine with a 
piston lift of 5 feet was limited by regulation to 22 revolu- 
tions of the shaft. It was not considered appropriate to drive 
the machine faster. And since the entire installation was 
adapted to this velocitj^ of 220 feet of piston lift per minute, 
this slow and senselessly restricted motion prevailed in the 
factories for many years. But finally, either through a lucky 
unfamiliarity with this regulation, or for better reasons of 
some daring innovator, a greater velocity was tried, and, since 
the result was very favorable, this example was followed by 
others. The machine was given full rein, as the saying was, 
and the main wheels of the transmission gear were changed 
in such a way that the steam engine could make 300 feet per 
minute and more, while the machinery was kept at its former 
speed. This acceleration of the steam engine had become 
general, because it had been demonstrated that more available 
power was gained from the same machine, and that the move- 
ments were much more regular on account of the greater im- 
petus of the driving wheel. The same steam pressure and the 
same vacuum in the condenser produced more power by means 
of a simple acceleration of the piston lift. For instance, if by 
appropriate changes we can accomplish that a machine yield- 
ing 40 horse power with 200 feet per minute makes 400 feet 
with the same steam pressure and vacuum, we shall secure ex- 
actly double that power, and since the steam pressure and the 
vacuum are the same in both cases, the strain on the various 
individual parts of the machine, and thus the danger of acci- 
dents, will not materially increase with an increase of speed. 
The whole difference is that we consume more steam in com- 
parison to the accelerated movement of the piston, or at least 



Economies in Employment of Constant Capital. 117 

approximately so; and furthermore, there is a somewhat more 
rapid wear of the bearings, or friction parts, but this is hardly 
worth mentioning. But in order to obtain more power with 
the same machine by speeding up the piston, more coal must 
be burned under the same steam boiler, or a boiler of a larger 
volume of evaporation must be employed, in short, more steam 
must be generated. This was accomplished, and boilers with 
a greater volume were installed with the old "accelerated" 
machines. These accomplished consequently as much as 100% 
more work. About 1842, the extraordinarily cheap genera- 
tion of power with steam engines in the mines of Cornwall 
began to attract attention. The competition in cotton spin- 
ning compelled the manufacturers to seek the main source of 
their profits in economies. The remarkable difference in the 
consumption of coal per hour and horse-power shown by the 
Cornish machines, and likewise the extraordinarily econom- 
ical performances of the Woolf Double Cylinder Machines, 
brought the question of fuel into the foreground, also in 
Nasmyth's district. The Cornish and the double cylinder 
machines furnished one horse-power per hour for every 33^ 
or 4 pounds of coal, while the machines in the cotton districts 
generally consumed 8 or 12 pounds per horse-power an hour. 
Such a marked difference induced the manufacturers and ma- 
chine builders of Nasmyth's district to accomplish by similar 
means just such extraordinary economies as were then the rule 
in Cornwall and France, where the high prices of coal had 
compelled the manufacturers to restrict this expensive branch 
of their business as much as possible. This led to some very 
important results. In the first place, many boilers, one-half 
of whose surface remained exposed to the cold outer air 
in the time of high profits, were then covered with thick layers 
of felt, or bricks and mortar, and other material, by which the 
radiation of the heat, which had been generated at such high 
cost, was prevented. Steam pipes were protected in the same 
way, and the cylinders were also surrounded by felt and wood. 
In the second place, high pressure came into use. Hitherto 
the safety-valve had been weighted only so slightly that it 
opened at 4, 6, or 8 pounds of steam pressure per square inch. 



ii8 Capitalist Production. 

Then it was discovered that considerable coal could be saved 
by raising the pressure to 14 or 20 pounds. In other v^^ords, 
the work of a factory was accomplished by a considerably 
lower consumption of coal. Those who had the means and 
the enterprise carried the system of increased pressure to its 
•full extension and employed judiciously constructed steam- 
boilers, which furnished steam at a pressure of 30, 40, 60, or 
70 pounds per square inch, which would have scared an en- 
gineer of the old school to death. But as the economic result 
of this increased steam-pressure soon made itself felt in the 
unmistakable form of so many pounds sterling, shillings, 
and pence, the high pressure boilers for condensing machines 
became very common. Those who carried out the reform 
radically used the Woolf machines, and this took place in most 
of the recently built machines. These were the Woolf 
machines with two cylinders, in one of which the steam from 
the boiler furnishes power by means of the excess of pressure 
over that of the atmosphere, whereupon, instead of escaping as 
formerly after each stroke of the piston into the open air, it 
passes into a low pressure cylinder of about four times the 
volume of the other and, after accomplishing there some more 
expansion, goes to the condenser. The economic result ob- 
tained by such a machine is the performance of one horse-- 
power per hour for every 3^ or 4 pounds of coal, while the 
machines of the old style required from 12 to 14 pounds for 
this purpose. A clever device permitted the adaption of the 
Woolf system with double cylinders, that is to say, the high 
and low pressure machine, to already existing machines and 
thus the increase of their performance and at the same time 
a reduction in the consumption of coal. The same result was 
obtained during the last 8 or 10 years by a combination of a 
high pressure machine with a condensing machine in such a 
way that the steam used in the former passed into the latter 
and drove it. This system is useful for many purposes. It 
would not be easily possible to obtain any accurate statistics 
of the increased performances of the same identical steam- 
engines supplied with some or all of these new improvements. - 
But it is certain that the same weight of steam machinery now 



Economics in Employment of Constant Capital. 119 

performs 50% more service on an average, and that in many 
cases the same steam-engine, which yielded 50 horse-powers 
at the time of the limited speed of 220 feet per minute, yields 
now more than 100 horse-powers. The highly economical re- 
sults of the employment of high pressure steam in condensing 
machines, and the far greater demands made upon the old ma- 
chines for the purposes of business expansion, have led in the 
last three years to the introduction of pipe boilers, by which 
the cost of steam generation is again considerably reduced. 
(Eep. Fact, Oct., 1852, pages 23 to 27.) 

What applies to power generating, also applies to power 
transmitting and working machinery. According to Redgrave's 
rejiort, on page 58 of the above-cited document, the rapid steps 
made in the development of improvements in machinery dur- 
ing the last years have enabled the manufacturers to expand 
production without additional motive power. The more eco- 
nomical employment of labor has become necessary through 
the shortening of the working day, and in most well-managed 
factories means are always considered by which production 
may be increased, and expenses decreased. Redgrave has be- 
fore him a calculation, wdiich he owes to the courtesy of a very 
intelligent gentleman in his district, referring to the number 
and age of the laborers employed in his factory, the machines 
operated in it, and the w^ages paid from 1840 to date. In 
October, 1840, his firm employed 600 laborers, of whom 200 
were less than 13 years old. In October, 1852, they employed 
only 350 laborers, of whom only 60 were less than 13 years 
old. The same number of machines, with very few excep- 
tions, were in operation, and the same amounts were paid in 
wages, in both years. 

These improvements of machinery do not show their full 
effects until they are used in new and judiciously built fac- 
tories. 

According to the testimony of a cotton spinner in the fac- 
tory reports for 1863, page 110, great progress has been made 
in the building of factories in which such improved machinery 
is to be installed. In the basement of his factory he twin':^s 
all his yam, and for this purpose alone he installs 29,000 



120 Capitalist Production. 

doubling spindles. In this room and in the shed alone he 
saves at least 10% in labor. This is not so much the result 
of improvements in the doubling system, as of the concen- 
tration of machinery under one gearing. He can drive the 
same number of spindles with one single driving shaft, and 
thus he saves from 60 to 80% for gearing as compared to 
other firms. This furthermore results in a great saving of 
oil, grease, etc. In short, with perfected installations in his 
factory and improved machinery he had saved at least 10% 
in labor, not to mention great economies in power, coal, oil, 
grease, transmission belts and shafts. 

IV. Utilisation of the Excrements of Production. 

With the advance of capitalist production the utilisation of 
the excrements of production and consumption is extended. 
We mean by the former the refuse of industry and agricul- 
ture, and by the latter either the excrements, such as issue from 
the natural circulation of matter in the human body, or the 
form in which objects of consumption are left after being used. 
Excrements of production, for instance in chemical industries, 
are such by-products as are wasted in production on a smaller 
scale; iron filings collected in the manufacture of machinery 
and carried back into the production of iron as raw material, 
etc. Excrements of consumption are the natural discharges 
of human beings, remains of clothing in the form of rags, etc. 
The excrements of consumption have the most value for agri- 
culture. So far as their utilisation is concerned, the capital- 
ist mode of production wastes them in enormous quantities. 
In London, for instance, they find no better use for the ex- 
crements of four and a half million human beings than to con- 
taminate the Thames with it at heavy expense. 

The raising of the price of raw materials naturally leads to 
the utilisation of waste products. 

The general requirements for the re-employment of these 
excrements are: A great quantity of such excrements, such 
as is only the result of production on a large scale; improve- 
ments in machinery by which substances formerly useless in 



Economies in Employment of Constant Capital. 121 

their prevailing form are given another useful in reproduction; 
progress of science, especially of chemistry, which discovers 
the useful qualities of such waste. It is true, that great econ- 
omies of this sort are also observed in small agriculture carried 
on like gardening, for instance in Lombardy, southern China, 
and Japan. But on the whole the productivity of agricul- 
ture under this system is obtained by great prodigality in hu- 
man labor-power, which is drawn from other spheres of pro- 
duction. 

The so-called waste plays an important role in almost every 
industry. The factory report for December, 1863, mentions 
as one of the principal reasons why farmers in many parts of 
England and Ireland do not like to grow fiax, or do so but 
rarely, the great waste occurring in the preparation of flax 
by small scutch-mills driven by water. The waste is rela- 
tively small in cotton, but very considerable in fiax. Good 
treatment in soaking and mechanical scutching may reduce 
this disadvantage considerably. In Ireland flax is frequently 
scutched in a very slovenly manner, so that from 28 to 30% 
are lost. All this might be avoided by the use of better ma- 
chinery. So much tow fell by the side in the preparation of 
flax that the factory inspector reports having heard it said of 
some of the scutching mills in Ireland that the laborers carry 
the waste home and burn it in their fire-places, although it is 
very valuable. (Page 140 of the above report.) We shall 
speak of cotton later, in discussing the fluctuations of prices 
of raw materials. 

The wool industry was carried on more intelligently than 
the preparation of flax. The same report states on page 10)7 
that it was formerly the custom to veto the preparation of 
waste wool and woolen rags for renewed use, but this preju- 
dice has been entirely dropped so far as the shoddy trade is 
concerned, which has become an important branch of the wool 
district of Yorkshire. It is doubtless expected that the trade 
with cotton waste will soon occupy the same rank as a line 
of business meeting a long felt want. Thirty years previous 
to 1863, woolen rags, that is to say pieces of all-wool cloth, 
etc., were worth on an average about 4 p.st. 4 sh. per ton. But 



122 Capitalist Production. 

a few years before 1863 they had become worth as much as 
•i-i p. St. per ton. And the demand for them had risen to such 
an extent that mixed stuffs of wool and cotton were also used, 
means having been found to destroy the cotton without in- 
juring the wool. And thousands of laborers were employed 
in 1863 in the manufacture of shoddy, and the consumer ben- 
efited thereby, being enabled to buy cloth of good quality at 
very reasonable prices. The shoddy so rejuvenated consti- 
tuted in 1862 as much as one-third of the entire consumption 
of wool in English industry, according to tlie factory report 
of October, 1862, page 81. The truth about the " benefit " 
for the " consumer " is that his shoddy clothes wear out in 
one-third of the time which good woolen clothes used to last, 
and become threadbare in one-sixth of this time. 

The English silk industry moved on the same inclined 
plane. From 1839 to 1862 the consumption of genuine raw 
silk had somewhat decreased, wdiile that of silk waste had 
doubled. By the help of improved machinery it was possible 
to make this otherwise rather worthless stuff into a silk useful 
for many purposes. 

The most striking instance of the iitilisation of waste 
was furnished by the chemical industry. It utilises not only 
its own waste in new ways, but also that of many other in- 
dustries. For instance it converts the formerly almost useless 
gas-tar into aniline colors, alizarin, and more recently even 
into drugs. 

This economy through the re-employment of excrements of 
production must be distinguished from economies through the 
prevention of waste, that is to say, the reduction of excre- 
ments of production to a minimum and the maximum utilisa- 
tion at first hand of all raw and auxiliary materials required 
in production. 

The reduction of waste depends in part on the quality of 
the machinery in use. Oil, soap, etc., are saved to the extent 
that the parts of a machine are constructed accurately and 
polished. This refers to auxiliary materials. In part, how- 
ever, and this is the most important part, it depends on the 
quality of the emj^loyed machines and tools whether a large or 



Economics in Employment of Constant Capital. 123 

small i^ortion of raw material is converted into waste in the 
process of production. Finally it depends on the quality of 
the raw material itself. This in turn is conditioned on the 
development of the extract industry and agriculture produc- 
ing the raw material (the progress of civilisation strictly so 
called), and on the improvement of processes through which 
the raw materials pass before their entry into manufacture. 
'' Parmentier proved that the art of grinding grain was 
very materially improved in France in recent times, for in- 
stance since tlie time of Louis XIV, so that the new mills, 
compared to the old, can make as high as twice as much bread 
from the same amount of grain. In fact, the annual consump- 
tion of an inhabitant of Paris was at first placed at 4 setiers 
of grain, then at 3, finally at 2, while nowadays it is only 1^ 
setier, or about 342 lbs. per capita. ... In the Perche, 
in which I lived for a long time, the crude mills of granite 
and trap rock have been rebuilt according to the rules of ad- 
vanced mechanics as understood for the last 30 years. They 
have been provided with good mill stones from La Ferte, the 
grain has been ground twice, the milling sack has been given 
a circular motion, and the output of flour has increased by 
one-sixth for the same amount of grain. I can easily explain 
the enormous discrepancy between the daily consumption of 
grain among the Romans and among us. It is due simply to 
the imperfect method of milling and bread making. In this 
connection I must explain a peculiar fact mentioned by Pliny, 
XVIII, c. 20, 2 : . . . ' The flour was sold in Rome, 
according to quality, at 40, 48, or 96 as per modius.' These 
prices, so high in proportion to the contemporaneous prices 
of grain, are due to the imperfect state of the mills of that 
period, and the resulting heavy cost of milling." (Dureau 
de la Malle, Economie Politique des Romains. Paris, 1840, 
I, page 28-0.) 



V. Economies Due to Inventions. 

These economies in the utilisation of fixed capital, we re- 
peat, are due to the application of the requirements of labor 



124 Capitalist Production. 

on a large scale, in short, are due to the fact that these require- 
ments serve as the first conditions of direct co-operative and 
social production, a co-operation within the primary process 
of production. On the one hand, this is the indispensable re- 
quirement for the application of mechanical and chemical in- 
ventions without increasing the price of commodities, and 
this is always the first consideration. On the other hand, 
only production on a large scale permits those economies which 
are derived from co-operative productive consumption. Fi- 
nally, it is only the experience of combined laborers which dis- 
covers the where and how of economies, the simplest methods 
of applying the experience gained, the way to overcome prac- 
tical frictions in carr3ang out theories, etc. 

Incidentally it should be noted that there is a difference 
between universal labor and co-operative labor. Both kinds 
play their role in the process of production, both flow one 
into the other, but both are also differentiated. Universal 
labor is scientific labor, such as discoveries and inventions. 
This labor is conditioned on the co-operation of living fellow- 
beings and on the labors of those who have gone before. Co- 
operative labor, on the other hand, is a direct co-operation of 
living individuals. 

The foregoing is corroborated by frequent observation, 
to-wit : 

1) The great difference in the cost of the first building of 
a new machine and that of its reproduction, on which see Ure 
and Babbage. 

2) The far greater cost of operating an establishment based 
on a new invention as compared to later establishments aris- 
ing out of the ruins of the first one, as it were. This is car- 
ried to such an extent that the first leaders in a new enterprise 
are generally bankrupted, and only those who later buy the 
buildings, machinery, etc., cheaper, make money out of it. 
It is, therefore, generally the most worthless and miserable 
sort of money-capitalists who draw the greatest benefits out of 
the universal labor of the human mind and its co-operative 
application in society. 



The Effect of Fluctuations in Price. 125 



CHAPTER VI. 

THE EFFECT OF FLUCTUATIONS IN PRICE. 

I. Fluctuations in the Price of Raw Materials, and their 
Direct Effects on the Rate of Profit. 

The assumption in this case, as in previous ones, is that no 
change takes place in the rate of surplus-value. This assump- 
tion is necessary in order that this case may be analysed in its 
pure state. However, it would be possible that a certain cap- 
ital, whose rate of surplus-value remains unchanged, might 
employ an increasing or decreasing number of laborers, in con- 
sequence of contraction or expansion caused by fluctuations 
in the price of raw materials such as we are about to analyse 
here. In that case, the mass of surplus-value might vary, 
while the rate of surplus-value remained the same. Still, it 
will be convenient to set aside also such a case as a side-issue. 
If improvements of machinery and changes in the price of 
raw materials simultaneously influence either the number of 
laborers employed by a certain capital, or the level of wages, 
one has but to tabulate 1) the effect caused by the variations 
of constant capital in the rate of proflt, and 2) the effect caused 
by variations in wages on the rate of proflt. The result then 
becomes apparent of itself. ■ 

But in general, it should be noted here, as in previous cases: 
If variations take place, either in consequence of economies 
in the constant capital, or in consequence of fluctuations in 
the price of raw materials, they alwaj^s affect the rate of proflt, 
even though they may leave the wages, and therefore the mass 
and rate of surplus-value, untouched. They change the mag- 
nitude of the C in s' -^, and thus the value of the whole frac- 
tion. It is therefore immaterial, in this case, in contradis- 
tinction to what we found to be the case in our analysis of 
surplus-value, in which sphere of production these variations 



126 Capitalist Production. 

take place, whether the lines of production affected by them 
produce articles of food for laborers, or constant capital for 
the production of such articles, or not. The deductions made 
here ajjply just as well if these variations occur in the produc- 
tion of articles of luxury, and by the production of articles of 
luxury I mean all production not serving for the reproduction 
of labor-power. 

In the raw materials we include here also the auxiliary 
substances, such as indigo, coal, gas, etc. Furthermore, so far 
as machinery falls under this head, its own substance consists 
of iron, wood, leather, etc. Its own price is therefore affected 
by fluctuations in the prices of raw materials used in its con- 
struction. To the extent that its price is raised through 
fluctuations, either in the price of. the raw materials of which 
it consists, or of the auxiliary substances consumed in its 
operation, the rate of profit is lowered. And vice versa. 

In the following analysis it will be necessary to confine 
ourselves to fluctuations in the price of raw materials, not so 
far as they go to make up the raw materials of machinery 
serving as means of production, or as raw materials in aux- 
iliary substances applied in the operation of machinery, but 
in so far as they are raw materials contributing to the process 
in which commodities are produced. We make only this re- 
mark : The wealth of nature in iron, coal, wood, etc., which 
are the principal elements used in the construction and oper- 
ation of machinery, presents itself here as a natural fertility 
of capital and becomes an element in determining the rate of 
profit, independently of the highness or lowness of wages. 

Since the rate of profit is represented by -^, or ^-^, it is 
evident that everything which causes a variation of the mag- 
nitude of c, and thereby of C, must also bring about a varia- 
tion in the rate of profit, even if s and v, and their mutual 
proportions, remain unaltered. Now, raw materials consti- 
tute one of the principal portions of constant capital. Even 
in industries which consume no raw material, in the strict 
meaning, it enters as auxiliary material, or as a component 
part of machinery, etc., and fluctuations in its price influence 
to that extent the rate of profit. If the price of raw material 



The Effect of Fluctuations in Price. 127 

falls by the amount d, then -^, or ^, become ^A^, or (T^^v^, 
in other words, the rate of profit rises. On the other hand, 
if the price of raw material rises, then -^, or -~, become 
cfd> ^^ • (c+d)+v ? ^^ other words, the rate of profit falls. Other 
circumstances remaining unchanged, the rate of profit falls 
and rises, therefore, inversely as the price of raw material. 
This shows, among other things, how important the low price 
of raw material is for industrial countries, even if fluctuations 
in the price of raw materials were not accompanied by varia- 
tions in the selling sphere of the product, that is to say, quite 
aside from the relation of demand to supply. It follows fur- 
thermore that foreign trade influences the rate of profit, even 
aside from its influence on wages through the cheapening of 
the necessities of life, for it affects the prices of raw or aux- 
iliary materials consumed in industry or agriculture. T| is 
due to the imperfect understanding of the nature of the rate 
of profit and its specific difference from the rate of surplus- 
value that economists (like Torrens) give a wrong explana- 
tion of the marked influence of the prices of raw material on 
the rate of profit, as demonstrated by experience, and that on 
the other hand economists like Eicardo, who cling to general 
principles, misapprehend the influence of such factors as the 
world's trade on the rate of profit. 

We may realise, then, the great importance of the abolition 
or reduction of tariffs on raw materials for industry. Al- 
ready the first rational development of the protective system 
made the utmost reduction of import duties on raw materials 
one of its cardinal principles. This, and the abolition of th<^ 
duty on corn, was the main object of the English free traders, 
who took also, above all, care to have the duty on cotton abol- 
ished. 

The use of flour in the cotton industry may serve as an 
illustration of the importance of a reduction in the price of 
an article, which, although not strictly raw material, is an 
auxiliary and, of course, at the same time one of the princi- 
pal elements of food. As long ago as 183Y, E. H. Gteg ^^ 

" The Factory Question and the Ten Hours Bill. By R. H. Greg. London, 
1837. ra^e 115. 



128 Capitalist Production. 

calculated that the 100,000 power looms and 250,000 hand 
looms then operated in the cotton mills of Great Britain con- 
sumed 41 million lbs. of flour in the smoothing of chains. 
To this was added a third of this quantity for bleaching and 
other processes. The total value of the flour so consumed was 
placed by him at 342,000 p.st. per year for the preceding ten 
years. A comparison with the prices of flour on the con- 
tinent showed that the raise in the price of flour forced upon 
the manufacturers by the corn-laws amounted alone to 170,000 
p.st. per year. For 1837, Greg estimated it at a minimum of 
200,000 p.st., and he mentions the fact that one firm had to 
pay 1,000 p.st. more per year for flour. In consequence ot 
this "Large manufacturers, careful and calculated business 
men, declared that 10 hours of labor per day would be enough, 
if the corn-laws were repealed." (Rep. Fact., Oct., 1848, 
page 98.) The corn-laws were repealed. Also the duties on 
cotton and other raw materials. But no sooner had this been 
accomplished than the opposition of the manufacturers to 
the Ten Hours Bill became more violent than ever. And 
when the ten hour day in factories nevertheless became a law 
soon after, the first result was an attempt to reduce wages all 
around. 

The value of the raw materials and auxiliary substances 
passes entirely, and all at one time, into the value of the 
product in whose creation they are consumed, while the ele- 
ments of fixed capital transfer their value only gradually to 
the product in proportion as they are worn away. It follows 
that the price of the product is influenced to a far higher de- 
gree by the price of raw materials than by that of fixed capi- 
tal, although the rate of profit is determined by the total value 
of the capital, regardless of how much of this capital is con- 
sumed in the product. But it is evident — although we men- 
tion this merely incidentall}^ since we are still assuming that 
commodities are sold at their values, so that fluctuations of 
price caused by competition do not concern us here — that the 
expansion or restriction of the market depends on the price of 
the individual commodity and is inversely proportioned to the 
rise or fall of this price. For this reason we note in reality 



i 



The Eifect of Fluctuations in Price. 129 



that a rise in the price of raw material is not accompanied 
by a corresponding rise of the price of the product, nor a fall 
in the price of the raw material bj a corresponding fall of that 
of the product. Consequently the rate of profit falls lower 
in one case, and rises higher in the other, than it would if 
products w^ere sold at their value. 

Furthermore, the mass and value of the employed machinery 
grows with the development of the productivity of labor, but 
not in the same proportion as this productivity, in other words, 
not in the same proportion as the machine increases its output. 
Those lines of industry, which consume raw materials, so that 
the objects on which they expend their labor are themselves 
products of previous labor, express the growing productivity 
of labor precisely by the proportion in which a certain in- 
creased portion of raw material absorbs a. definite quantity of 
labor. In other words, this increasing productivity is meas- 
ured by the increasing amount of raw material converted into 
products, worked up into commodities, for instance, in one 
hour. To the extent, then, that the productivity of labor is 
developed, the value of raw material forms an ever growing 
component of the value of the product in commodities, not 
only because it passes wholly into them, but also because 
every aliquot part of the aggregate product contains an ever 
decreasing share of that portion which represents the wear of 
machinery and that other which represents newly added labor. 
In consequence of this falling tendency the other portion of 
value which represents raw material increases correspondingly, 
unless this growth is counterbalanced by a proportionate de- 
crease in the value of the raw material due to a growing 
productivity of the labor required for its production. 

Again, we know that the raw materials and auxiliary sul> 
stances, the same as wages, form parts of the circulating cap- 
ital and must be continually reproduced in their entirety 
through the sale of the product, while the machinery is re- 
newed only to the extent that it wears out, a reserve fund be- 
ing accumulated for that purpose. And it is not so essential 
that each individual sale should contribute its share to this 
reserve fund, so long as the total annual sales contribute their 



130 Capitalist Production. 

annual sliare. We see, then, once more that a rise in the 
price of raw material can curtail or clog the entire process of 
reproduction, since the price realised bj the sale of the com- 
modities may not suffice to reproduce all the elements of these 
commodities. Or, it may render a continuation of the process 
on a scale fitting for its technical basis impossible, so that 
either a portion of the machinery remains idle, or the whole 
machinery works only a part of the usual time. 

Finally, the expense due to waste varies in direct propor- 
tion to the fluctuations in the price of raw material, rises and 
falls with them. Of course, there is a limit also in this case. 
In 1850 it was still reported, in the factory reports for April, 
1850, page 17, that one source of considerable losses through 
the raising of the price of raw material would hardly be no- 
ticed by any one who is not a practical spinner, namely losses 
through waste. The reporting inspector had been informed 
that a rise in the price of cotton implied a greater rise in the 
expenses of the spinner than is indicated by the difference 
in price. The waste in the spinning of coarse yams 
amounts to fully 15%. If this percentage causes a loss of 
-| d. per lb. when cotton is worth 3^ d., then the loss 
increases to 1 d. per lb. as soon as cotton rises to T d. 
per lb. But when, as a result of the American Civil War, 
cotton rose to a height not equalled in almost a century, the 
report read differently. We learn from the factory reports of 
October, 1863, page 106, that the price then paid for cotton 
w^aste, and the return of the waste to the factory as raw ma- 
terial, offered some compensation for the difference in the 
loss through waste between Indian and American cotton. 
This difference amounted to 12^%. The loss in working up 
Indian cotton is 25%, so that really this cotton costs the spin- 
ner one-fourth more than he paid for it. The loss through 
waste was not so important while American cotton was quoted 
at 5 or 6 d. per lb., for it did not exceed f d. per lb. But it 
became a matter for serious consideration, Avhen cotton cost 2 
sh. per lb. and the loss through waste amounted to 6d.-^^ 

'* The report makes a mistake in the last sentence. Instead of 6d. for loss, 
through waste, only 3d. should be allowed. This loss amounts indeed to 25% with 



The Effect of Fluctuafions in Price. 131 

II. Appreciation, Depreciation, Release, and Tie-up of 

Capital. 

The phenomena analysed in this chapter require for their 
fnll development the credit-system and competition on the 
world-market, the latter being the basis and vital element of 
capitalist production. These more concrete forms of capi- 
talist production can be comprehensively presented only after 
the general nature of cajiital is understood. Moreover, such 
a presentation lies outside of the scope of this work and be- 
longs in its eventual continuation. Nevertheless, the phenom- 
ena mentioned in the title of this chapter may be discussed at 
this stage in a general way. They are interrelated among 
themselves, and at the same time touch upon the rate and mass 
of profits. They are entitled to consideration right here for 
the further reason that they create the impression that not 
only the rate, but also the mass of profit — which is actually 
identical with the mass of surplus-value — could increase or 
decrease independently of the movements of surplus-value, 
whether it be its mass or its rate. 

Are we to consider the release and tie-up of capital on one 
side, its appreciation or depreciation on the other, as different 
phenomena ? 

The question is first : What do we mean by the release and 
tie-up of capital ? Appreciation and depreciation explain 
themselves. They do not signify anything but that a certain 
given capital grows or declines in value as a result of general 
economic conditions of some sort, for we do not discuss any 
particular fate of some individual capital. They indicate, in 
short, that the value of the capital invested in production rises 
or falls, aside from the question of its self-expansion by 
means of the surplus-labor employed by it. 

By the tie-up of capital we mean that a certain portion of 
the total value of the product must be reconverted into the 
elements of constant and variable capital, if production is to 

Indian, but only to 12J^ to 15% with American cotton, and this last kind is 
meant, the same percentage being correctly stated for the price of 5 to 6d. It is 
true, however, that the percentage of waste increased at times considerably, for 
American cotton brought to Europe during the closing years of the Civil 
War.— F. E. 



132 Capitalist Production. 

proceed on the same scale. By the release of capital we mean 
that a portion of that part of the total value of the product 
which had to be reconverted into constant or variable capital 
up to a certain time becomes disposable and superfluous, pro- 
vided production is to continue on the same scale. This re- 
lease or tie-up of capital is different from the release or tie- 
up of revenue. If the annual surplus-value of a certain 
capital C is equal to x, then a reduction in the price of com- 
modities consumed by the capitalists would suffice to procure 
the same enjoyments as before by means of x — a. In other 
words, a portion of the revenue equal to a is released, and 
may ser\'e either for the extension of consumption or the re- 
conversion into capital (for the purpose of accumulation). 
Vice versa, if x -|- a is needed in order to continue the same 
scale of living, then this scale must either be reduced or a 
portion of revenue equal to a and previously accumulated 
must be drawn upon as revenue. 

The appreciation or depreciation may strike either the con- 
stant, or the variable capital, or both. In the case of the con- 
stant capital it may affect either the fixed, or the circulating 
portion, or both. 

In the case of the constant capital we have to consider the 
raw materials and auxiliary substances, including half-wrought 
articles, all of which we comprise here under the term raw 
materials, furthermore, machinery and other fixed capital. 

We referred in the preceding analysis especially to varia- 
tions in the price, or the value, of raw materials, and to their 
influence on the rate of profit. And we announced the general 
law that, other circumstances remaining the same, the rate 
of profit is inversely proportioned to the value of the raw 
materials. This is unconditionally true of a capital newly 
invested in any business enterprise, where the investment of 
capital, that is to say the conversion of money into productive 
capital, is just taking place. 

But aside from this capital in process of new investment, a 
large portion of the already functioning capital is engaged in 
the sphere of circulation, while another portion is busy in 
the sphere of production. One portion exists on the market 



The Effect of Fluctuations in Price. 133 

in the shape of commodities waiting to be converted into 
money; another exists in the shape of money of some kind 
waiting to be reconverted into elements of production, finally, 
a third portion exists in the sphere of production, either in 
the primitive form of means of production (raw materials, 
auxiliary substances, half-wrought articles purchased on the 
market, machinery and other fixed capital), or as products in 
process of manufacture. The effect of appreciation or de- 
preciation of any of these depends in a large measure on the 
relative proportions of these things. Let us leave aside, for 
the sake of simplicity, all fixed capital, and let us consider 
only that portion of constant capital which consists of raw 
materials, auxiliary substances, partly wrought articles, and 
commodities in the making or in a finished state. 

If the price of raw material, for instance of cotton, rises, 
then the price of those cotton goods which were made while 
cotton was cheaper — both half-wrought articles like yarn, 
and finished goods like cotton fabric — rises along wuth that 
of the rest. So does the value of the cotton held in stock and 
waiting to be worked up and that of the cotton in process of 
being worked. This last-named cotton then represents by in- 
direction more labor-time than was incorporated in it, and 
consequently it adds more value than its own original one to 
the product which it goes to make up, and more than the 
capitalist paid for it. 

If, then, a rise in the price of raw materials finds on the 
market a considerable quantity of finished commodities, what- 
ever may be the state of their perfection, the value of these 
connnodities rises, and consequently the value of the existing 
capital is enhanced. The same is true for the supply of raw 
materials in the hands of the producers. This appreciation 
of value may Indemnify the individual capitalist, or even an 
entire sphere of capitalist production, for the loss caused by 
a fall in the rate of profit incidental to a rise in the price 
of raw materials, or it may even more than make good that 
loss. Without entering into the details of the effects of com- 
petition, we may state for the sake of completeness that, in 
the first place, when the supplies of raw material held in sf^k 



134 Capitalist Production. 

are considerable, they fend to oppose a rise in the price of 
raw materials at the place where they are produced; and in 
the second place, when the half-wrought articles and finished 
goods press very heavily upon the market, they prevent the 
price of these things from rising in proportion to the price of 
their raw materials. 

The reverse takes place when there is a fall in the price 
of raw materials. Other circumstances remaining the same, 
it increases the rate of profit. The commodities on the mar-^ 
ket, the articles in the making, and the supplies of raw mate- 
rial depreciate in value and thereby counteract the accom- 
panying rise in the rate of profit. 

The effect of a variation in prices of raw materials be- 
comes so much more marked, the smaller a quantity of sup- 
plies exists in the sphere of production and on the market, 
for instance at the close of a business year, when great masses 
of raw materials are delivered anew, as happens in agriculture 
after the harvest. 

We start in this entire analysis from the supposition that 
a rise or a fall in prices are the expressions of actual varia- 
tions in value. But since we are here concerned in the effects 
of such variations in price on the rate of profit, it matters 
little what is at the bottom of them. The present statements 
apply just as well in the case that prices rise or fall, not on 
account of variations in value, but of the influence of the 
credit-system, competition, etc. 

Seeing that the rate of profit is the expression of the excess 
of the value of the product over the value of the total capital 
advanced, a rise of the rate of profit due to a depreciation of 
the advanced capital would be accompanied by a loss in the 
value of capital. And a lowering of the rate of profit due to 
an appreciation of the advanced capital might be accompanied . 
by gains. 

As for the other portion of constant capital, such as ma- 
chinery, and fixed capital in general, the appreciation of val- 
ues taking place in them, and referring mainly to buildings, 
real estate, etc., they cannot be discussed without an under- 
standing of the theory of ground rent, and do not belong in 



TJic Eifect of Fluctuations in Price. 135 

this chapter, for this reason. But thej have a general im- 
portance for the question of depreciation. 

There are, in the first place, constant improvements which 
lower relatively the use-value, and therefore the exchange- 
value, of existing machinery, factory equipments, etc. This 
process has a dire effect especially during the first epoch of 
newly introduced machinery, before it has reached a certain 
stage of maturity, when it becomes continually antiquated 
before it has had time to reproduce its own value. This is 
one of the reasons for the irrational prolongation of the work- 
ing time customary at such periods, of working with day and 
night shifts, in order that the value of the machinery may be 
reproduced in a shorter time without having to place the fig- 
ures for wear and tear too high. On the other hand, if a 
short period of effectiveness of machinery (its short term of 
life compared to anticipated improvements) is not compen- 
sated in this w'ay, then it yields too much of its value to the 
product by moral wear, so that it cannot compete even against 
hand-labor. ^^ 

When machinery, equipment of buildings, and fixed capital 
in general have reached a certain maturity, so that they re- 
main unaltered in their basic construction, at least for an or- 
dinary length of time, then a similar depreciation takes place 
in consequence of improvements in the methods of reproduc- 
tion of this fixed capital. The value of machinery, etc., falls 
in that case, not because this machinery is rapidly crowded 
out and depreciated to a certain degree by new and more pro- 
ductive machinery, etc., but because it can be reproduced more 
cheaply. This is one of the reasons why large enterprises fre- 
quently do not fiourish until they pass into the second hand, 
after their first proprietors have been bankrupted, so that 
their successors, who buy them cheaply, are enabled to begin 
with a smaller investment of capital at the very outset. 

In the case of agriculture it is evident that the same 
causes which raise the price of the product or lower it must 
also raise or lower the value of capital, since this capital con- 

'^ For illustrations see Bahbage, among others. The usual expedient, a reduction 
of wages, is employed also in this instance, and so this continual depreciation 
works out quite contrary to the dreams of the harmonious brain of Mr. Carey. 



136 Capitalist Production. 

sists to a large degree of this product, such as grain, cattle, 
etc. 



There still remains the variable capital for our considera- 
tion. 

To the extent that the value of labor-power rises on ac- 
count of a rise in the price of the means of existence required 
for its reproduction, or falls on account of a reduction of the 
value of these means of existence — ^ and a rise or fall in the 
value of variable capital are but expressions of those two 
cases — a rise in surplus-value corresponds to such deprecia- 
tion and a fall in surplus-value to such appreciation, assum- 
ing the length of the working-day to remain the same. But 
other circumstances — a release or tie-up of capital — may- 
accompany such cases, and as we did not analyse them so far, 
we may briefly mention them now. 

If wages fall in consequence of a depreciation of the value 
of labor-power (which may be accompanied even by a rise in 
the actual price of labor), then a portion of the capital hith- 
erto invested in wages, is released. Variable capital is set 
free. For new investments of capital, this signifies a working 
with a higher rate of surplus-value. It takes less money than 
before to set in motion the same amount of labor, and in this 
way the unpaid portion of labor increases at the expense of 
the paid portion. But in the case of already invested capital 
not only the rate of surplus-value is raised, but a portion of 
the capital previously invested in wages is also released. It 
had been tied up until this time and formed a regular portion 
which had to be deducted from the proceeds of the product 
and advanced for wages, in order to perform the functions of 
variable capital, provided the business was to continue on its 
former scale. Now" this portion becomes disposable and may 
be used for a new investment, either in the extension of the 
same business, or to perform a function in some other sphere 
of production. 

Let us assume, for instance, that 500 p.st. were required at 
first to employ 500 laborers per week, and that now only 400 
p.st. are needed for the same purpose. If the mass of value 



The Eifect of Fluctuations in Price. 137 

produced in either case was 1,000 p.st., then the mass of siir- 
phis-value produced per week in the first case was 500 p.st., 
and the rate of surplus-value f-g-g-, or 100%. But after the 
reduction of wages the mass of surplus-value will be 1,000 — 
400, or 600 p.st., and its rate f ^f , or ISO^o. And this rais- 
ing of the rate of profit is the onlj effect produced for any 
one who starts a new enterprise in this sphere of production 
with a variable capital of 400 p.st. and a corresponding con- 
stant capital. But in a business already existing when this 
takes place, the depreciation of the variable capital does not 
only increase tlie rate of surplus-value from 500 to 600 p.st., 
and the rate of surplus-value from 100 to 150%, but 100 p.st. 
of the variable capital are released and enabled to exploit more 
labor. The same amount of labor is then not alone advan- 
tageously exploited, but the release of 100 p.st. makes it pos- 
sible to exploit more laborers with those 500 p.st. at the in- 
creased rate. 

l^ow take the opposite case. Take it that the original pro- 
portion of division, with 500 laborers, was 400 v -j- 600 s, 
making 1,000, so that the rate of surplus-value was 150%. 
The laborer, in that case, received f p.st., or 16 shillings per 
week. ISTow, if in consequence of an appreciation of variable 
capital 500 laborers cost 500 p.st. per week, then each one 
of them will receive 1 p.st. per week, and 400 p.st. can employ 
only 400 laborers. If the same number of laborers as before 
is to be employed, then we must have 500 v -j- 500 s, or 1,000. 
The rate of surplus-value w^ould have fallen from 150 to 
100%, which is by one-third. If some new capital were now 
to be invested, the only effect felt by it would be this lower 
rate of surplus-value. Other circumstances remaining the 
same, the rate of profit would also have fallen, although not to 
the same extent. For instance, if c equals 2,000, we should 
have in the one case 2,000 c -f 400 v + 600 s ==. 3,000. The 
rate of surplus-value would be 150 9f, the rate of profit -^VV? 
or 25%. In the second case we should have 2,000 c -f" 500 v 
-I- 500 s =. 3,000. The rate of surplus-value would be 100%, 
the rate of profit yVoiTj oi" 20%. However, for a capital al- 



138 Capitalist Production. 

ready invested there would be a twofold effect. Only 400 la- 
borers could be employed with 400 p.st, at a rate of surplus- 
value amounting to 100%. They would then produce only 
400 p. St. of surplus-value. Furthermore, since a constant 
capital of 2,000 p.st. requires 500 laborers for its operation, 
400 laborers could operate only a constant capital of 1,600 
p.st. If production is to continue on the same scale as be- 
fore and one-third of the machinery prevented from remaining 
idle, then the variable capital must be increased by 100 p.st., 
in order that 500 laborers may still be employed. And this 
can be accomplished only by tying up a hitherto disposable 
capital, so that a portion of the accumulation intended for an 
extension of production serves then merely for stopping a gap, 
or a portion reserved for revenue is added to the old capital. 
A variable capital increased by 100 p.st. produces then 100 
p.st. less of surplus-value. More capital is required to em- 
ploy the same number of laborers, and the surplus-value 
yielded up by each laborer is at the same time reduced. 

The advantages resulting from a release, and the disadvan- 
tages resulting from a tie-up of variable capital, affect only 
capital already engaged and reproducing itself under certain 
determined conditions. So far as newly invested capital is 
concerned, the advantage on the one, or the disadvantage on 
the other side, are limited to a raising or lowering of the rate 
of surplus-value and a variation of the rate of profit accord- 
ingly, if not always in the same proportion. 

The release and tie-up of variable capital, analysed in the 
foregoing, is the result of a depreciation or appreciation of 
the elements of variable capital, that is to say, of the cost 
of reproduction of labor-power. However, variable capital 
might also be released, if the development of the productivity, 
with the rate of wages unchanged, results in the possibility of 
getting along with fewer laborers for the operation of the 
same amount of constant capital. Vice versa, additional vari- 
able capital may be formed, if the productive power declines 
and more laborers are needed to operate the same mass of con- 
stant capital. On the other hand, if a portion of capital for- 
merly employed in the capacity of variable capital is trans- 



The Effect of Fluctuations in Price. 139 

ferred to the constant capital, so that there is merely a different 
distribution between the components of the same capital, this 
has its influence on the rate of surplus-value and of profit, but 
does not belong in this discussion of the release and tie-up of 
capital. 

We have already seen that constant capital may be released 
or tied up by a depreciation or appreciation of its component 
elements. Aside from this, it can be tied up only in the case 
that the productive power of labor increases (not to mention 
the case in which a portion of the variable is transferred to the 
constant capital), so that the same amount of labor creates a 
greater product and therefore operates a larger constant cap- 
ital. The same may occur under certain circumstances when 
the productive power decreases, for instance in agriculture, 
so that the same quantity of labor requires more means of 
production, such as seeds, manure, drainage, etc., in order 
to produce the same output. Constant capital may be re- 
leased without depreciation, when improvements, the harness- 
ing of natural powers, etc., enable a constant capital of smaller 
value to perform the same technical services as those formerly 
performed by a constant capital of greater value. 

We have seen in volume II that once that the commodi- 
ties have been converted into money, sold, a certain portion. 
of this money must be reconverted into the material elements 
of constant capital, and this in proportion to the technical na- 
ture of" any given sphere of production. In this respect, the 
most important element in all lines — ■ aside from wages, or 
variable capital — is the raw material, including the auxiliary 
substances, which are particularly important, in all lines of 
production that do not use any raw materials in the strict 
meaning of the term, for instance in mining and extractive 
industries in general. That portion of the price which has to 
make good the wear and tear of machinery plays mainly an 
ideal role in calculation, so long as the machine is at all in 
workable condition. It does not matter greatly whether it is 
paid and replaced by money to-day or to-morrow, or in any 
other section of the period of turn-over of the capital. It is 
different with the raw material. If the price of raw material 



140 Capitalist Production. 

rises, it may be impossible to make it good fully out of the 
price of the commodities after deducting the wages. Violent 
fluctuations of price therefore cause interruptions, great col- 
lisions, or even catastrophies in the process of reproduction. 
It is especially the products of agriculture, raw materials 
taken from organic nature, which are subject to such fluctua- 
tions of value in consequence of changing yields, etc., leaving 
aside altogether tlie question of the credit-system, for the pres- 
ent The same quantity of labor may, in consequence of un- 
controllable natural conditions, the favor or disfavor of sea- 
sons, etc., be incorporated in very different quantities of 
use-values, and a definite quantity of these use-values may 
have very different prices. If the value x is represented by 
100 lbs. of the commodity a, then the price of one lb. of a 
equals ^. If it is represented by 1,000 lbs., the price of 
one lb. is ^ , etc. This is one of the elements in the fluctu- 
ations of the price of raw materials. A second element, which 
is mentioned at this point only for the sake of completeness, 
since competition and the credit-system are still outside of the 
scope of our analysis, is this : It is in the nature of the thing 
that vegetable and animal substances, which are dependent on 
certain laws of time for their growth and production, cannot 
be suddenly augmented in the same degree as, for instance, 
machines and other fixed capital, or coal, ore, etc., whose aug- 
mentation, assuming the natural requirements to be present, 
can be accomplished in a very short time in an industrial 
country. It is therefore possible, and under a developed 
system of capitalist production even inevitable, that the pro- 
duction and augmentation of that portion of the constant cap- 
ital which consists of fixed capital, machinery, etc., should 
run ahead of that portion which consists of organic raw ma- 
terials, so that the demand for these last materials grows more 
rapidly than their supply, and their price rises in consequence. 
This rising of prices carries with it the following results: 1) 
A shipping of raw materials from great distances, seeing that 
the rising price covers greater freight rates; 2) an increase 
m their production, ^vhich, however, for natural reasons, will 
not be felt until the following year; 3) a using up of various 



The Effect of Fluctuations in Price. 141 

hitherto unused accessories, and a better economising of waste. 
If this rise of prices begins to exert a marked influence on 
production and supply, the turning point has generally ar- 
rived at which the demand lets up on account of the protracted 
rise of the raw material and of all commodities made up of 
it, so that a reaction in the price of raw material takes place. 
Aside from convulsions due to the depreciation of capital in. 
various forms, this reaction is also accompanied by other cir- 
cumstances which will be mentioned immediately. 

So much is evident from the foregoing: To the extent that 
capitalist production is developed, and with it the means of 
suddenly and permanently increasing that portion of the con- 
stant capital which consists of machinery, etc., and to the ex- 
tent that accumulation is accelerated (as it is particularly in 
times of prosperity), to that extent does the relative over- 
production of machinery and other fixed capital increase, the 
relative underproduction of vegetable and animal raw mate- 
rials become more frequent, the above described rise of their 
prices and the subsequent reaction more marked. And the 
revulsions increase correspondingly in frequency, so far as 
they are due to this violent fluctuation of one of the main 
elements of the process of reproduction. 

ISTow, if these high prices collapse, because their rise had 
caused partly a falling off in the demand, partly an extension 
of production here, an importation of goods from remote and 
hitherto little noted or neglected regions of production in an- 
other place, and with them an excess of the supply over the 
demand, especially if this excess comes in with the old prices, 
then we have a result which offers various points of view. 
The sudden collapse of the price of raw materials checks their 
reproduction, and consequently the monopoly of the original 
producing countries, which are favored by the best conditions, 
is restored. It may be restored with certain limitations 
but still it is restored. The reproduction of tlie raw mate- 
rials proceeds indeed, after the first impulse has been given, 
on an enlarged scale, especially in countries which have more 
or less of a monopoly of this production. But the basis on 
which production takes place after the extension of machin- 



142 Capitalist Production. 

erj, etc.; and which, after some fluctuations, has to - serve as 
the new point of departure, is very much enlarged by the 
occurrences of the last cycle of turn-over. At the same time 
the barely increased reproduction has been considerably 
checked in the secondary countries of supply. For instance, 
it can be easily shown by a reference to the export tables that, 
during the last thirty years (up to 1865) the production of 
cotton gTows in India, whenever there has been a falling off 
in the American, and that there is after awhile a sudden drop 
and falling off in the Indian. During the period in which 
raw materials are high, the industrial capitalists get together 
in associations for the purpose of regulating production. So 
they did, for instance, after the rise of cotton prices in 1848, 
in Manchester, and a similar move was made in the production 
of flax in Ireland. But as soon as the immediate impulse 
has worn off, and the principle of competition reigns once 
more supreme, according to which one must " buy in the 
cheapest market" (instead of stimulating production in the 
most favored countries, as those associations attempt to do, 
without regard to the monetary price at which those countries 
may just happen to supply their product), the regulation of 
the supply is left once more to " prices." All thought of a 
common, far-reaching, circumspect control of the production 
of raw materials gives way once more to the belief that de- 
mand and supply will mutually regulate one another. And 
it must be admitted that such a control is on the whole ir- 
reconcilable with the laws of capitalist production, and re- 
mains for ever a platonic desire, or is limited to exceptional 
co-operation in times of great stress and helplessness.^^ The 

^° Since the above was written (1865), competition on the world-market has 
been considerably intensified by the rapid development of industry in all civilized 
countries, especially in America and Germany. The fact that the rapidly and 
enormously growing productive forces grow beyond the control of the laws of 
the capitalist mode of exchanging commodities, inside of which they are supposed 
to move, this fact impresses itself nowadays more and more even on the minds 
of the capitalists. This is shown especially by two symptoms. First, by the new 
and general mania for a protective tariff, which differs from the old protectionism 
especially by the fact that now the articles which are capable of being exported 
are the best protected. In the second place it is shown by the trusts of manu- 
facturers of whole spheres of production for the regulation of production, and 
thus of prices and profits. It goes without saying that these experiments are 
practicable only so long as the economic weather is relatively favorable. The 



The Effect of Fluctuations in Price. 143 

superstition of the capitalists in this respect is so crude that 
even the factory inspectors lift tlieir hands in sui-pHse, in 
their reports. The variation of good and bad years, of course, 
leads at times to the production of cheaper raw materials. 
Aside from the direct effect of this on the extension of the de- 
mand, an added stimulant is found in the previously men- 
tioned influence on the rate of profit. Thereupon the afore- 
said process of a gradual overtaking of the production of 
raw materials by that of machinery, etc., is repeated on a 
larger scale. An actual improvement of raw materials in 
such a way that not only their quantity, but also their qual- 
ity would come up to expectations, for instance supplying 
cotton of American quality from Indian fields, would neces- 
sitate a long continued, progressively growing, and steady 
Euroj^ean demand (quite aside from the economic conditions 
under which the Indian producer labors in his country). As 
it is, the sphere of production of raw materials is extended 
only convulsively, being now suddenly enlarged, and then vio- 
lently contracted. All this, and the spirit of capitalist pro- 
duction in general, may be very well studied in the cotton 
crisis of 1861-65, which was further aggravated by the 
fact that raw materials were at times entirely missing which 
are one of the principal factors of reproduction. The price 
may also rise while there is an abundant supply, namely in 
the case that this abundance takes place under difficult condi- 
tions. Or, there may be an actual shortage of raw material. 
It was the last condition which originally prevailed in the 
cotton crisis. 

The closer we approach in the history of production to our 
own times, so much more regularly do we find, especially in 
the essential lines of industry, the ever recurring fluctuation 
between a relative appreciation and the resulting depreciation 
of raw materials purloined from organic nature. The pre- 
ceding statements will be verified by the following illustra.- 
tions from reports of factory inspectors. 

first storm must upset them and prove, that, although production assuredly needs 
regulation, it is certainly not the capitalist class which is fitted for that task. 
Meanwhile the trusts have no other mission but to see to it that the little fish 
are swallowed by the big fish still more rapidly than before — P E. 



144 Capitalist Production. 

The moral of this story, which may also be deduced from 
other observations in agriculture, is that the capitalist sys- 
tem works against a rational agriculture, or that a rational 
agriculture is irreconcilable with tlie capitalist system, al- 
though technical improvements in agriculture are promoted 
by capitalism. But under this system, agriculture needs 
either the hands of the self-employing small farmer, or the 
control of associated producers. 



We present now the following illustrations from the Eng- 
lish factory reports. 

According to E,. Baker, factory reports for October, 1858, 
pages 56-61, the condition of business was then better. But 
the cycle of good and bad times was shortened with the in- 
crease of machinery, and to the extent that the demand for 
raw materials increases, the fluctuation in the conditions of 
business occur more frequently. Tor the time being confi- 
dence had been restored after the panic of 1857, and the panic 
itself seemed almost forgotten. Whether this improvement 
would be lasting, depended, in Baker's opinion, to a large ex- 
tent on the price of raw materials. He saw indications that 
the maximum had already been reached, beyond which manu- 
facture becomes less and less profitable, and finally ceases al- 
together to yield any profits. Taking the prosperous years in 
the worsted business, 1819 and 1850, it will be seen that the 
price of English carded wool was 13 d., and of Australian, 
11 to 17 d. per lb., and that the average price of English 
wool, for the decade from 1811 to 1850, never exceeded 14 d., 
nor that of Australian 17 d. But at the beginning of the 
disastrous year 1857, Australian wool was quoted at 23 d. 
It fell in December, at the time of the worst panic, to 18 d., 
but rose once more in the course of the year 1858 to 21 d. 
English wool likewise began in 1857 with 20 d., rose in April 
and September to 21 d., fell in January, 1858 to 14 d., and 
rose subsequently to 17 d., so that it stood 3 d. per lb. higher 
than the average of the aforementioned 10 years. This 
shows, in Mr. Baker's opinion, that either the failures of 
1857, which were due to similar prices, have been forgotten, 



The Effect of Fluctuations in Price. 145 

or that barelj enough wool is produced to keep the existing 
spindles running. Or the prices of fabrics may experience 
a lasting rise. But he has seen in his experience that spin- 
dles and frames multiplied in an incredibly short time, not 
only in numbers, but also in speed ; that the English wool 
export to France rose at almost the same rate, while the aver- 
age age of sheep in England and other countries was steadily 
reduced, since the population was rapidly increasing and 
breeders were trying to turn their stock into money as quickly 
as possible. He often was seriously alarmed, when he saw 
people, igiiorant of these facts, invest their ability and their 
capital in enterprises whose success depended on the supply 
of a product which can be increased only according to certain 
organic laws. The conditions of supply and demand of all 
raw materials seems to explain to Mr. Baker many fluctua- 
tions in the cotton business as well as the condition of the 
English wool market in the fall of 1857 and the subsequent 
commercial crisis. ^^ 

The most flourishing time of the worsted industry of the 
West-Riding of Yorkshire was from 1849 to 50. This in- 
dustry employed 29,246 persons in 1838, 37,000 persons in 
1813, 48,097 in 1845, 74,891 in 1850. (Factory Reports, 
1850, page 60.) This prosperity of the carded wool industry 
began to excite certain forebodings in October, 1850. In his 
report for April, 1851, sub-inspector Baker says in regard to 
Leeds and Bradford that the condition of business is very un- 
satisfactory. The carded wool spinners are rapidly losing 
the profits of 1850, and the majority of the weavers do not 
make much progress. He believes that more wool machinery 
is momentarily standing idle than ever before, and the flax 
spinners are likewise discharging laborers and stopping ma- 
chinery. The cycles of the textile industry are very uncer- 
tain, and he thinks that people will soon realise that no pro- 
portion is observed between the productivity of the spindles, 
the quantitv of raw materials, and the increase of population. 
(Page 52.) 

" It goes without saying that we do not, with Mr. Baker, explain the wool 
crisis of 1857 out of the disproportion between the raw material and the product. 
This disproportion was itself but a symptom, and the crisis was general. — F. E. 

J 



146 Capitalist Production. 

The same is true of the cotton industry. In the same report 
for October, 1858, we read that, since the fixing of the hours 
of labor in factories, tlie amounts of raw material consumed, 
of production, and of wages in all textile industries have been 
reduced to a simple rule of three. The inspector quotes from 
a recent lecture by Mr. Payns, who was then mayor of Black- 
burn, on the cotton industry, in which the industrial statistics 
of that region were very accurately compiled. The mayor 
said in substance that every actual horse-power operates 450 
self-actor spindles with preparatory spinning machinery, or 
200 throstle spindles, or 15 looms for clotk 40 inches wide, 
with machinery for reeling, warping and smoothing. Every 
horse-power employs two and a half laborers in spinning, or 
10 in weaving. Their average wages are fully 10^ shillings 
per capita per week. The worked iTp average numbers are 
Xos. 30-32 for the warp and Xos. 34-36 for the woof. As- 
suming the product of one week's spinning to be 13 ounces per 
spindle, the weekly output of yarn would be 824,700 lbs., 
which imply a consumption of 970,000 lbs., or 2,300 bales 
of cotton valued at 28,300 p.st. In a circle of five mil': 
around Blackburn the weekly consumption of cotton amounted 
to 1,530,000 lbs., or 3,650 bales, at a cost-price of 44,625 p.st. 
This is one-eighteenth of the entire cotton spun in the United 
Kingdom, and one-sixteenth of the entire mechanical weav- 
ing- 

The inspector says that according to the calculations of 
Mr. Payns the total number of cotton spindles in the United 
Kingdom would be 28,800,000, and it would require 1,432,- 
080,000 lbs. of cotton to keep them going at full speed. But 
the cotton imports, after deducting the exports, amounted in 
1856 and 1857 only to 1,022,576,832 lbs. so that there must 
have been a shortage of 409,503,168 lbs. Mr, Payns, who 
had the kindness to discuss this point with the inspector, held 
that a computation of the annual consumption of cotton, based 
on the consumption of the Blackburn district, would total up 
too high, on account of the difference, not only of the num- 
bers spun, but also of the excellence of the machinery. He 
estimated the total consumption of cotton per year in the 



The Eifect of Fluctuations in Price. 147 

United Kingdom at 1,000 million lbs. But if he is correct, 
and there is actually a surplus-import of 22^ million lbs., 
then the inspector thinks that demand and supply are nearly 
balanced, without taking into account the additional spindles 
and looms which are about to be erected in Mr. Payns' own 
district, according to him, and the same applies probably to 
other districts as well. (Pages 59, 60.) 



III. General Illustration. The Cotton Crisis of 1861— 18G5. 
Preliminary History, 18Ii-5-1860. 

1845. Prosperity of cotton industry. Price of cotton very 
low. L. Horner says on this point that he has not witnessed 
a more active period of business than that of the last sum- 
mer and fall. Especially in the spinning of cotton. Through- 
out the entire six months he received every week reports of 
new investments of capital in factories. ISTow new factories 
were being built, now the few vacant ones had found new 
renters, now factories which were in operation were extended, 
new and stronger steam engines installed and more working 
machinery added. (Factory Eeports, JSTovember, 1845, page 

13.) 

1845. The complaints are beginning. For some time the 
inspector hears general complaints among the manufacturers 
over the depressed state of their business. During the last 
six weeks, he says, various factories have begun working 
short time, generally 8 hours instead of 12. This seemed to 
become general. There had been a great rise in the price of 
cotton, while the price of the products had not alone not 
risen, but fallen to a lower figure than that before the rise in 
cotton. The great increase in the number of cotton factories 
during the preceding four years must have caused a strong 
increase in the demand for raw material and a large supply 
of products on the market. Both of these things must have 
operated to depress profits, so long as the supply of raw ma- 
terial and the demand for the product remained unchanged. 
But they actually had a far stronger influence, because the 
supply of cotton had recently been insufficient, and the de- 



11 

148 Capitalist Production. ^1 

mand for the product had let up in various inland and foreign 
markets. (Factory Reports, December, 1846, page 10.) 

The rising demand for raw materials went, of course, hand 
in hand with the overstocking of the market with products. 
By the way, at that period the expansion of industry and the 
subsequent stagnation were not confined to the cotton dis- 
tricts. The carded wool district of Bradford contained in 
1836 only 318 factories, but 490 in 1846. And these figures 
do not by any means express the actual extension of produc- 
tion, since the existing factories were at the same time con- 
siderably enlarged. This was especially true of the flax mills. 
According to the factory report, November, 1846, page 30, 
all of them had contributed more or less, during the preceding 
10 years, to that overstocking of the market which was to 
blame for the stagnation of business at the time being. The 
depression in business followed naturally after such a rapid 
expansion of factories and machinery. 

1847. In October, a money panic. Discount 8%. This 
was preceded by a collapse of railroad speculation, and of 
jobbing with East-Indian bills of exchange. 

The factory report for October, 1847, page 30, states that 
Mr. Baker presented very interesting details concerning the 
rise in the demand for cotton, wool, and flax, in recent years, 
caused by the expansion of these industries. He held that the 
increased demand for these raw materials, particularly at a 
time when their supply had fallen far below the average, was 
sufficient to explain the prevailing depression in those lines 
of business, without reference to the insecurity of the money- 
market. This view was fully supported by the personal ex- 
perience of the Avriter of the report, and by statements made 
to him by experts in business. All these various lines of 
business had been very much depressed, when discounts were 
still practicable at 5% and less.- On the other hand, the sup- 
ply of raw silk was abundant, prices reasonable, and the busi- 
ness correspondingly brisk until a few weeks previously, when ' 
doubtless the money-panic affected not only the dealers in raw 
silk, but still more their principal customers, the manufac- 
turers of custom made goods. A glance at the published offi- 



The Effect of Fluctuations in Price. 149 

cial reports showed that the cotton industry had increased by 
almost 27% during the preceding three years. As a result, 
cotton had risen in round figures from 4 d. to 6 d. per lb., 
while yarn, thanks to the increased supply, stood only a trifle 
above its former price. The wool industry commenced to 
expand in 1836. Since then it had grown by 40% in York- 
shire, and still more in Scotland. The increase in the worsted 
industry was still larger. -^^ The calculations showed in its 
case, for the same length of time, an expansion of more than 
74%. The consumption of raw wool had, therefore, been 
very large. The linen industry showed since 1839 an in- 
crease of about 25% in England, 22% in Scotland, and al- 
most 90% in Ireland,^^ the consequence of this, and of tiiC 
failure of flax crops, was that the price of the raw material 
rose by 10 p.st. per ton, while the price of yarn had fallen by 
6 d. per bundle. 

1849; Beginning with the last months of 1848, business 
revived. According to factory reports, 1849, pages 30, 31, 
the price of flax, which was so low that it guaranteed a reason- 
able profit under all possible future circumstances, induced 
manufacturers to push their business steadily. The wool 
manufacturers were very busy for a time in the beginning of 
the year. The writer of the report feared, however, that 
consignments of woolen goods often took the place of real de- 
mand, and that periods of seeming prosperity, that is to say, 
of full employment, did not always coincide w-ith periods of 
legitimate demand. The worsted business was particularly 
good for some months. In the beginning of this period, wool 
stood especially low. The mill-owners had stocked them- 
selves at advantageous prices, and no doubt in considerable 
quantities. When the price of wool rose with the spring auc- 
tions, the mill-o\\Tiers had the advantage, and they retained 
it, since the demand for goods became strong and irresistible. 

" A careful distinction is made in England between the woollen manufacture, 
which spins carded yarn from short wool and weaves it (main centre Leeds), and 
the worsted manufacture, which makes worsted yarn from long wool and weaves 
it (main seat Bradford, in Yorkshire). — F. E. 

'^ This rapid expansion of the manufacture of linen yarn by machinery, in 
Ireland, gave the death-blow to the exportation of the linen made of hand-made 
yarn in Germany (Silesia, Lusatia, and Westphalia). — F. E. 



150 Capitalist Production. 

On page 42 of the factory report for April, 1849, we read 
that, considering the fluctuations in the conditions of business, 
which had taken place in the factory districts for three or 
four years, it must be admitted that there is somewhere some 
great disturbing cause. May not the productive power of 
the increased machinery have become a new element? 

In November, 1848, in May, summer, and up to October, 
1849, business became more and more flourishing. The same 
report states on pages 42 and 43, that this applies particu- 
larly to the manufacture of goods from worsted yarn, which 
centers in Bradford and Halifax. At no previous time did 
this business approximate the extension which it had then. 
The speculation in raw materials, and the uncertainty of its 
probable supply, has always caused greater excitement and 
more frequent fluctuations in the cotton industry than in any 
other line of business. For the time being there was an ac- 
cumulation of supplies of the coarser grades of cotton goods, 
which worried the small mill-owners and placed them at a 
disadvantage, so that some of them were working short time. 
1850. ApriL Business continued brisk. Exception, ac- 
cording to factory report, April, 1850, page 54: There is a 
great depression in a portion of the cotton industry as a re- 
sult of insufiicient supplies of raw material precisely for 
coarse grades of yarn and heavy textures. It is feared that 
the increased machinery lately installed in the worsted busi- 
ness may bring about a similar reaction. Mr. Baker calcu- 
lates that alone in the year 1849, the product of the looms in 
this business has grown by 40%, and that of the spindles by 
25 to 30%, and the expansion is still continuing at the same 
rate. 

1850. October. The factory report for October states on 
page 15 that the price of cotton continues to cause considera- 
ble depression in this line of industry, especially for such 
goods as require a considerable portion of the cost of produc- 
tion to be spent for raw material. The great rise in the price 
of raw silk has led to an aggravation of the situation in many 
instances, also in this line. And on page 33 of the same re- 
port we learn that the committee of the Eoyal Association for 



Ml 



The Eifect of Fluctuations in Price. 151 

Flax Culture in Ireland was of tlie opinion that the high price 
of flax, together with the low level of prices of other agricul- 
tural products, had safeguarded a considerable increase in the 
production of flax for the ensuing year. 

1853. April. Great prosj)erity. L. Horner says in the 
factory report for April, 1853, page 19, that at no time dur- 
ing the 17 years, in which he took official notice of the con- 
dition of the factory districts of Lancashire, has he seen such 
general prosperity. The activity in all lines was extraor- 
dinary. 

1853. October. Depression in the cotton industry. 
Overproduction. (Factory Report, October, 1853, page 15.) 

1851. Aj)ril. The factory report for 1854, page 37, 
states that the wool business, while not brisk, furnished full 
employment for all factories. The same held good of the 
cotton industry. The worsted business w^as irregular through- 
out the entire preceding half year. There was a disturbance 
in the linen industry in consequence of the reduced supply of 
flax and hemj) from Kussia, on account of the war in the 
Crimea. 

1859. According to the factory report for April, 1859, 
page 19, business was still depressed in the Scotch linen in- 
dustry, because the raw material was scarce and dear. The 
low quality of the preceding crop in the Baltic countries, from 
which came the main supply, was expected to exert an inju- 
rious influence on the business of this district. On the other 
hand, jute, which displaced flax for many coarse goods, was 
neither uncommonly dear nor scarce. About one-half of the 
machinery in Dundee was spinning jute. The factory re- 
port for October, 1859, states on page 30, that in consequence 
of the high price of raw material, flax spinning is not yet 
profitable, and while all other factories are running on full 
time, there are various instances of idle flax machinery. The 
jute mills are in a satisfactory condition, since recently this 
material has fallen to a reasonable figure. 



152 Capitalist Production. 

1861-64. American Civil War. Cotton Famine. The 
Greatest Illustration of an Interruption in tJie Process of 
Production through Scarcity and Dearness of Raw Mate- 
rial. 

1860. April. The reporting inspector says in substance 
in factory report, April, 1860: I am pleased to be able to 
inform you that, in spite of the high price of raw materials, 
all textile industries, with the exception of silk, have been 
well employed during the last half year. In some of the 
cotton districts, laborers were advertised for, and secured by 
immigration from Norfolk and other rural counties. There 
seems to be a great lack of raw materials in all branches of 
industry. It is alone this lack which holds us back. In the 
eotton business, the number of factories erected, the exten- 
sion of already existing ones, and the demand for laborers, 
has probably never been so great. Raw materials are sought 
on all sides. 

1860. October. The factory report for October, 1860, 
states on page 37, that the condition of business in the cotton, 
wool, and flax districts has been good. It is reported to have 
been very good in Ireland, for more than a year, and would 
have been still better but for the high price of raw materials. 
The flax mills seem to be waiting with more impatience than 
ever for the opening of the resources of India by railroads, 
and for a corresponding development of its agriculture, in 
order to secure at last a supply of flax sufficient for their re- 
quirements. 

1861. April. The factory report for April, 1861, states 
on page 33 that the condition of business for the time being 
was depressed. A few cotton goods factories were working 
short time, and many silk factories were running only a part 
of the time. Raw materials were dear. In almost every tex- 
tile branch raw materials were quoted above the price at which 
they could be worked by the mass of the consumers. 

It now became evident that the cotton industry had pro- 
duced too much in 1860. The effect of this made itself felt 
for the next few years. The factory report for December, 
1863, page 127, states that it took between two and three years 



I 



The Effect of Fluctuations in Price. 153 

for the world-market to absorb the overproduction of 1860. 
And the factory report for October, 1862, pages 28 and 29, 
says in so many words: The depressed condition of the mar- 
kets for cotton goods in Eastern Asia, in the beginning of 1860, 
had a corresponding influence on the business in Blackburn, 
where on an average of 30,000 mechanical looms are almost 
exclusively engaged in the production of goods for this market. 
The demand for labor was, therefore, already restricted at 
this point many months before the effects of the blockade 
made themselves felt. Fortunately, many factories were 
thereby saved from ruin. The supplies rose in value so long 
as they were held in stock, and this prevented the appalling 
depreciation which is othenvise inevitable in such a crisis. 

1861. October. According to the factory report for Octo- 
ber, 1861, page 19, the business has been depressed for some 
time. It is not at all improbable that many factories will 
materially reduce their working time during the winter 
months. However, this was to be anticipated ; quite aside 
from the causes which have interrupted the ordinary supply 
of cotton from America and the English exports, it would have 
been necessary to reduce the hours of labor during the com- 
ing winter, on account of the strong increase of production in 
the preceding three years, and the disturbance of the Indian 
and Chinese markets. 

Cotton ^Vaste. East Indian Cotton. (Sural.) Influence on 
the Wages of Laborers. Improvement of Machinery. 
Substitution of Starch Flour and Minerals for Cotton. 
Effect of this Starch Flour Ingredient on the Laborers. 
Manufacturers of Fine Grades of Yarn. Fraud on the 
Part of the Manufacturers. 

An inspector writes in the factory report for October, 1863, 
page 63 : A manufacturer thinks that, so far as the estimate 
of the cotton consumption per spindle is concerned, I did not 
sufficiently appreciate the fact that, when a cotton is dear, 
every manufacturer of ordinary yarns (say up to ]^o. 40, 
mainly from 12 to 32) spins as fine grades as he possibly can, 
that is to say, he will spin N'o. 16 instead of 12, or 22 instead 



154 Capitalist Production. 

of 16, etc. And the weaver who works up these fine yarns, 
will raise his calico to the regular weight by adding so much 
more glue. This expedient is now used to a shameful de- 
gree. I have it on good authority that there are ordinary 
shirtings for export weighing 8 lbs. per piece, of which 2 lbs. 
were glue. Textures of other kinds are often given as much 
as 50% of glue, so that that manufacturer does not lie by any 
means who boasts of becoming a rich man by selling his 
fabrics at less money per pound than he paid for the yarn of 
which they are made. 

We read furthermore in the same place: I have also been 
told that the weavers ascribe the growth of disease among 
themselves to the glue used in the woof of East-Indian Cotton 
and not merely consisting of flour, as heretofore. This sub- 
stitute for flour is said to have the very great advantage of in- 
creasing the weight of fabrics considerably, so that 15 lbs. of 
yarn, after being woven, weigh 20 lbs. (This substitute was 
ground talcum, called China clay, or gypsum, called French 
chalk.) The wages of the weavers (meaning the laborers) 
have been very much reduced by the employment of substi- 
tutes^ for flour in the making of weaver's glue. This glue 
renders the yarn heavier, but also stiff and brittle. Every 
thread of the yam passes in the loom through the bobbin, whose 
strong threads keep the woof in position. The stifflly glued 
woof continually causes breaks in the thread of the bobbin. 
Every break causes a loss of five minutes to the weaver for 
repairs. The weavers have to repair such breaks ten times as 
often as formerly, and the loom naturally turns out so much 
less during working hours. (Pages 42 and 43.) 

In Ashton, Stalybridge, Oldham, etc., the working hours 
have been reduced by at least one-third, and are reduced still 
more every week. This reduction of the hours of labor is in 
many instances accompanied by a reduction of wages, (Page 
13.) In the beginning of 1861, a strike took place among 
the mechanical weavers in some parts of Lancashire. Several 
manufacturers had announced a reduction of wages by 5 to 
7.5%. The laborers insisted that the scale of wages should 
be maintained and the hours of labor reduced. This was 



The Effect of Fluctuations in Price. 155 

not granted, and a strike was called. After one month, the 
laborers had to give in. But then they got both. Aside from 
a reduction of wages which the laborers finally accepted they 
also worked short time in many factories. (Factory Report, 
April, 1863, page 23.) 

1862. ApriL The sufferings of the laborers had consid- 
erably increased since the last rej^ort was made. But at no 
time in the history of this industry have so sudden and so 
grievous ills been borne with so much quiet resignation and 
such patient self-respect. (Factory Report, April, 1862, page 
10.) The proportion of the temporarily totally unemiDloyed 
laborers does not seem to be much larger than in 1848, when 
there was an ordinary panic, which, however, was of suffi- 
cient force to induce the worried manufacturers to compile a 
similar statistics on the cotton industry as that now given out 
weekly. In May, 1848, 15% of all the cotton employes of 
Manchester were idle, 12% worked short time, while more 
than 70% worked on full time. On May 28, 1862, there 
were 15% idle, 35% working on short time, and 49% on full 
time. In the neighboring places, for instance at Stockport, 
the percentage of the idle and partly employed is higher, that 
of the fully employed lower, because coarser numbers are spun 
there than in Manchester. (Page 16.) 

1862.' October. According to the last official statistics, 
there were in the United Kingdom 2,887 cotton factories, of 
which 2,109 were in the districts of Lancashire and Cheshire. 
The reporting inspector knew well enough that a very large 
number of the 2,109 factories in his district were small es- 
tablishments, which employed but a few laborers. But he 
was surprised when he found how large was the number of 
these. There were 392, or 19%, which had less than 10 
horse-power motors (steam or water) ; 345, or 16%, had be- 
tween 10 and 20 horse-powers; 1,372 had 20 horse-powers or 
more. A very large portion of the small manufacturers, more 
than one-third, had been laborers not very long ago. They 
are men without a command of capital. The main burden 
would fall upon the otlier two-thirds. (Factory Reports, 
October, 1862, pages 18, 19.) 



156 Capitalist Production. 

According to the same report, 40,140, or 11.3% of the cot- 
ton employes of Lancashire and Cheshire, were then working 
full time; 134,767, or 38%, were working a part of the time; 
197,721, or 50.7%, were unemployed. If we deduct from 
these figures the data referring to Manchester and Bolton, 
where mainly fine numbers were spun, a line little affected by 
the cotton famine, then the matter looks still more unfavora- 
ble, namely fully employed 8.5%, partly employed 38%, un- 
employed 53.3%. (Pages 19 and 20.) 

It makes an essential difference for the laborers whether 
good or bad cotton is worked up. In the first months of the 
year, when the manufacturers sought to keep their factories 
going by using up all the cotton bought at cheap prices, much 
bad cotton went into factories that usually worked only with 
good cotton. The difference in the wages of the laborers was 
so great that many strikes took place because no living wage 
could be made at the old piece wages. In a few instances the 
difference due to the employment of bad cotton amounted to 
one-half of the total wages, even at full time. (Page 27.) 

1863. April. In the course of this year, not more than 
about one-half of the cotton employes will work on full time. 
(Factory Keport, April, 1863, page 14.) 

A very serious inconvenience in the employment of East- 
Indian cotton, such as the factories must use at this time, is 
that the speed of the machinery must be considerably reduced 
with it. During the last years, everything has been tried to 
increase the speed, so that the same machinery might do more 
work. However, the reduced speed hits the laborer as much 
as the manufacturer. For the majority of the laborers are 
paid by the piece, the spinners receiving so much per lb. of 
yarn spun, the weavers so much per piece woven. And even 
the others, who work on weekly wages, will suffer a reduction 
through the restriction of production. According to the re- 
searches of the inspector, and the data received by him, re- 
ferring to the wages of the cotton employes during the year, 
there is an average reduction of 20% in some cases as much 
as 50%, compared to the wages which were in vogue in 1861. 
\Page 13.) The amount earned depends on the quality of 



The Effect of Fluctuations in Price, 157 

the material worked up. TJie condition of the laborers, so 
far as earnings are concerned, is much better now (October, 
1863) than at the same time last year. The machinery has 
been improved, the raw material is better known, and the 
laborers overcome the difficulties better with which they had 
to struggle in the beginning. In the previous spring, the in- 
spector was in a sewing school in Preston (a charity institu- 
tion for unemployed). Two young girls, who had been sent 
to a weaving establishment on the strength of a promise that 
they would be able to make 4 shillings per week, asked to be 
readmitted to the school and complained that they could not 
make 1 shilling per week. The inspector has had information 
concerning self-acting minders, that is to say, men who operate 
a few self-actors, who had earned 8 sh. lid. after 14 days 
of full employment, and their house-rent was deducted from 
this sum. The manufacturer returned one-half of this rent 
to them as a gift. (How generous!) The minders carried 
home the amount of 6 sh. 11 d. In some places the self- 
acting minders earned from 5 to 9 sh. per week, the weavers 
from 2 to 6 sh. per week, during the last months of 1862. 
At the time of the report there was a healthier condition of 
things, although even then the earnings in most districts had 
decreased still more. Other conditions contributed to the 
scanty earnings, aside from the shorter staple of East-Indian 
cotton and its impurity. For instance, it had become the 
custom to mix plenty of cotton waste with the Indian cotton, 
and this increases, of course, the difficulties for the spinner. 
Owing to the shortness of the fiber, the threads break more 
easily in drawing out the mule and twisting the yam, and the 
mule cannot be kept going so regularly. Furthermore, one 
girl frequently can watch but one loom, because she must pay 
more attention to the threads. But few of them have more 
than two looms. In many cases the wages of tlie laborers 
have been reduced by 5, 7.5, and 10%. In the majority of 
cases the laborer must handle his raw material as best he may, 
and try to make wages at the ordinary scale to the best of his 
power. Another difficulty with which the weavers have some- 
times to struggle is that they are supposed to make good 



158 Capitalist Production. 

fabrics out of bad materials, and are fined by deductions from 
their wages, if the work is not all that is desired. (Factoiy 
reports, October, 1863, pages 41—43.) 

Wages were miserable, even in places where full time was 
worked. The cotton employes willingly offered themselves for 
all public labors, drainage, road building, stone breaking, 
street paving, which they did in order to get their keep from 
the authorities (although this amounted practically to an as- 
sistance for the manufacturers. See volume I, chapter XXV, 
3.) The whole bourgeoisie stood guard over the laborers. If 
tlie worst of a dog's wages were offered, and the laborer re- 
fused to accept them, then the Assistance Committee struck 
him from their list. It was in a way a golden age for the 
manufacturers, for the laborers had either to starve or work 
at any price profitable for the bourgeois. The Assistance 
Committees acted as watch-dogs. At the same time the man- 
ufacturers, in secret agreement with the government, hin- 
dered emigi'ation as much as possible, either for the purpose 
of having their capital, invested in the flesh and blood of la- 
borers, ready at hand, or of safeguarding the squeezing of rent 
out of the laborers. 

The Assistance Committees acted with great severity in this 
matter. If work was offered, the laborers to whom it was 
offered were stricken from the lists and compelled to accept. 
If they refused to begin work, the reason waa that their earn- 
ings were but nominal, while the work Avas extraordinarily 
hard. (Page 97.) 

The laborers were willing to perform any work for which 
they were employed in consequence of the Public Work Acts. 
The principles according to which industrial occupations were 
assigned, varied considerably in different cities. But even 
in places where work in the open air was not absolutely re- 
garded as a labor test, this labor was either compensated wdtli 
the bare ordinary charitj^ sum, or so insignificantly better that 
it actually became a labor test. (Page 69.) The Public 
Works Act of 1863 was to remedy this evil and to enable the 
laborer to earn his wages as an independent day laborer. 
The purpose of this Act was threefold: 1) To enable local 



The hffect of Fluctuations in Price. 159 

authorities to borrow money from the loan treasury commis- 
sioners (with the consent of the president of the state's cen- 
tral poor boards; 2) to facilitate imj^rovements in the cities 
of the cotton districts; 3) to secure work and remunerative 
wages for the unemployed laborers. Up to the end of IS 63, 
loans to the amount of 883,700 p.st. had been granted under 
this Act. (Page 70.) The enterprises started were mainly 
canalisation, road building, street paving, reservoirs for water 
works, etc. 

Mr. Henderson, president of the committee of Blackburn, 
wrote with reference to this to factory inspector Redgrave, 
that in his entire experience in the course of this period of 
suffering and misery nothing had struck him more emphat- 
ically or given him so much pleasure as the serene willingness 
with which the unemployed laborers of his district accepted 
the work offered to them by the city council of Blackburn 
pursuant to the Public Works Act. A greater contrast could 
hardly be imagined than that between the cotton sj^inner, who 
formerly worked as a skilled man in the factory, and the day- 
laborer, who now works in a depth of 1-i or 18 feet on a drain- 
age canal. (They earned thereby about 4 to 12 sh. per week, 
according to the size of their families, and this last enormous 
amount had to provide sometimes for a family of eight. The 
gentlemen of the bourgeoisie derived a double profit from 
this. In the first place, they secured money for the improve- 
ment of their smoky and neglected cities at exceptionally low 
interest. In the second place, they paid wages to the labor- 
ers at a scale far below the ordinary.) Mr. Henderson thinks 
that this ready willingness on the part of the laborers to ac- 
cept the offered employment implied great self-denial and 
consideration, and deserved all honor, since they were accus- 
tomed to an almost tropical temperature, to work in which 
skill and accuracy counted for more than muscular strength, 
and to wages which were double, or sometimes treble, of what 
they could earn now. In Blackburn the men were tried at 
all possible kinds of labor in the open air. They dug through 
a stiff and heavy clay soil to a considerable depth, they did 
drainage work, broke stones, built roads, made excavations 



i6o Capitalist Production. * 

for street canals to a depth of 14, 16, and sometimes 20 feet. 
Frequently they stood in mud and water from 10 to 12 inches 
deep, and tliey were exposed to a climate whose wet cold was 
not exceeded, or perhaps not equalled, in any other district of 
England. (Pages 91 and 92.) The attitude of the laborers 
has been almost faultless, their willingness to accept work in 
the open air and to get along on it. (Page 69.) 

186-4. April. Occasionally comjDlaints about lack of la- 
borers are heard in various districts, especially in certain 
branches, for instance weaving. But these complaints are 
due as much to the low wages which the laborers may earn in 
consequence of the bad kinds of yarn as to an actual scarcity 
of laborers in this particular line. Numerous disputes over 
wages took place during the preceding month between some 
manufacturers and their laborers. The inspector regrets that 
strikes occurred far too frequently. The effect of the Public 
Works Act is now resented by the manufacturers as a com- 
petition, and as a result the local committee of Bacup has 
suspended its activity. For although all the factories are not 
yet running, there has already been a lack of laborers. (Fac- 
tory Report, April, 1864, pages 9 and 10.) It was indeed 
high time for the manufacturers to act. In consequence of 
the Public Works Act the demand for laborers grew so much 
that many a factory hand was making 4 to 5 shillings per day 
in the quarries of Bacup. And so the public works were 
gradually suspended; this new edition of the Ateliers nation- 
eaux of 1848, which had this time been opened in the interests 
of the bourgeoisie. 

Trying it on the Dog. 

Although the very reduced wages (of the fully employed), 
the actual earnings of the laborers in the different factories, 
have been given, it does not follow that they earn the same 
amount week after week. The laborers are exposed to great 
fluctuations at this place, in consequence of the continual ex- 
periments made by the manufacturers with different kinds and 
proportions of cotton and waste in the same factory. The 
" Mixtures," as they are called, are frequently changed, and the 



The Effect of Fluctuations in Price. i6i 

earnings of the laborers rise and fall with the quality of cotton 
mixtures. At times they earned only 15% of their former 
wages, and in one or a couple of weeks wages fell to 50 or 
00%. Inspector Redgrave, who makes this report, then pro 
ceeds to figures of wages selected from practical life. The 
following examples may suffice : 

A, weaver, family of 6 persons, employed 4 days in the 
week, G sh. 8.5 d. ; B, twister, 4.5 days per week, 6 sh. ; C, 
weaver, family of 4, 5 days per week, 5 sh. 1 d. ; D, slubber, 
family of 6, employed 4 days per week, 7 sh. 10 d. ; E, weaver, 
family of 7, employed 3 days, 5 sh., etc. Redgrave continues 
in substance : These data deserve attention, for they prove 
that labor would become a misfortune in some faiuilies, since 
it reduces not only the earnings, but depresses them so low 
that they become totally insufficient to satisfy anything but a 
small part of a family's absolute necessities, unless additional 
assistance Avere given in cases where the earnings of a family 
do not reach the amount which would be granted to them if all 
of them were unemployed. (Factory Reports, October, 1863, 
pages 50-53.) 

In no week since June 5, 1863, has the average total em- 
ployment of all laborers been more than 7 hours and some 
minutes. (Page 121.) 

From the beginning of the crisis to March 23, 1863, nearly 
three million pounds sterling were exjDended by the poor 
boards, the central committee of charity, and the London 
Mansion House committee. (Page 13.) 

In one district, in which perhaps the finest yarn is spun, 
the spinners suffer an indirect reduction of wages of 15% as 
a result of passing from Sea Island to Egyptian cotton. 

In one extended district, in which cotton waste is used in 
large quantities as an admixture to Indian cotton, the spin- 
ners have had their wages reduced by 5%, and lost besides 
from 20 to 30% by working up Surat and waste. The weav- 
ers have dropped from four looms to two. In 1860 they 
made 5 sh. 7 d. on each loom, but in 1863 only 3 sh. 4 d. The 
fines, which amounted to from 3 to d. per spinner on Amer- 
ican cotton, now run as hio;h as 1 sh. to 3 sh. 6 d. In one 

1 



1 62 Capitalist Production. 

district, in which Egyptian cotton was used, mixed with East- 
Indian, the average earnings of the mule sj^inners in 1860 
was from 18 to 25 sh., while it is only from 10 to 18 sh. now. 
This not exclusively due to deteriorated cotton, but also to 
the decreased speed of the mule, in order to give to tlie yarn a 
stronger twist, for which extra payment according to the wage 
scale would have been made in ordinary times. (Pages 43, 
44, 45-50.) Although East-Indian cotton may have been 
worked here and there at a profit for the manufacturers, the 
wage list on page 53 shows that the laborers suffer from it, 
compared with 1861. If the use of Surat becomes a settled 
fact, the laborers would demand the same wages as in 1857. 
Eut this would seriously affect the profits of the manufac- 
turers, unless it would be balanced by the price of either the 
cotton or the products. (Page 105.) 

House-Rent. The house-rent of the laborers living in cot- 
tages belonging to the manufacturers, is frequently deducted 
from their wages, even if only short time is worked. Never- 
theless the value of these buildings has fallen, and the cot- 
tages are now from 25 to 50% cheaper than formerly. A 
cottage which formerly rented from 3 sh. 6 d. per week, may 
now be had for 2 sh. 4d., and sometimes for less. (Page 
57.) 

Emigration. The employers were, of course, opposed to 
the emigration of the laborers, in the first place because they 
wished, in the expectation of better times in the cotton in- 
dustry, to keep the means at hand for the profitable opera- 
tion of their factories. In the second place some employers 
are owners of cottages in which their employes are to live, 
and at least some of them calculate without fail to collect at 
least a portion of the rent due them. (Page 96.) 

Mr. Bemall Osborne says in a speech to his parliamentary 
constituents, on October 22, 1864, that the laborers of Lan- 
cashire had behaved like ancient stoic philosophers. Per- 
haps they acted like sheep? 



4 



Additional Remarks. 163 



CHAPTER VII. 



ADDITIONAL KEMARKS. 



Take it, in accordance with, the assumption on which this sec- 
tion is based, that the mass of profit appropriated in any par- 
ticular sphere of production is equal to the sum of the sur- 
plus-values produced by the total capital invested in this 
sphere. Nevertheless the bourgeois will not consider his profit 
as identical with the surplus-value, that is to say, with un- 
paid surplus-labor. And he will do so, for the following 
reasons. 

1) He forgets the process of production in the process of 
circulation. He is of the opinion that surplus-value is made 
by his realisation on the value of commodities, which includes 
realisation on their surplus-value. [There is a blank at this 
place, indicating that Marx intended to dwell in detail on this 
point. — F. E.] 

2) Assuming a uniform degree of exploitation, we have 
seen that the rate of profit may differ considerably according 
to the relative cheapness or deamess of raw materials and the 
experience of the buyer, according to the relative productivity, 
efficacy, and cheapness of the machinery employed, according 
to the greater or lesser perfection of the general equipment of 
the various stages of the productive process, the simplicity and 
effectiveness of the management, etc. ; all this without refer- 
ence to any modifications due to the credit-system, to the mu- 
tual cheating of the capitalists among themselves, to any fa- 
vorable choice of tlie market. In short, given the surplus- 
value for a certain capital, it depends still very much on the 
individual business ability of the capitalist, or of his mana- 
gers and salesmen, whether this same surplus-value realises a 
greater or smaller rate of profit and thus yields a greater or 
smaller mass of profit. The same surplus-value of 1,000 



164 Capitalist Production. 

p.st., a product of 1,000 p.st. of wages, may be calculated in 
the business of A on 9,000 p.st., in the business of B on 11,000 
p.st. of constant capital. In the case of A we have then 
p' = 1^ , or 10%. In the case of B we have p' =j^, 
or 8^^. The total capital produces relatively more profit 
in the business of A than in that of B, although the variable 
capital advanced in either case is 1,000 p.st., and the surplus- 
value produced by it likewise 1,000 p.st., so that there is in 
both cases the same degree of exploitation of the same number 
of laborers. This difference in the materialisation of the 
same mass of surplus-value, or the difference in the rates of 
profit, may also be due to other causes. Still, it may be due 
wholly to a difference in business ability in both establish- 
ments. And this fact leads the capitalist to the conviction 
that his profits are due, not to the exploitation of labor, but 
at least, in part, to other circumstances independent of that 
exploitation, particularly to his individual activity. 



The analyses of this part of the work demonstrate the er* 
roneousness of the view (Rodbertus) according to which (in 
distinction from ground-rent, in the case of which the area of 
real-estate is said to remain the same and yet to produce a 
higher rent) a change in the magnitude of a certain capital is 
said to have no influence on the proportion of profit to capi- 
tal, and thus on the rate of profit, on the assumption that the 
mass of capital, on which profits are calculated, grows simul- 
taneously with the mass of profits, and vice versa. 

This is true only in two cases. In the first place, it is 
true, assuming all other circumstances, especially the rate of 
surplus-value, to remain unchanged, if there is a change in 
the value of that commodity which is a money-commodity. 
(The same occurs in the case of a merely nominal change of 
value, the rise or fall of mere tokens of value while other cir- 
cumstances remain the same.) Take it that the total capi- 
tal amounts to 100 p.st, with a profit of 20 p.st., so that the 
rate of profit is 20%. Now, if gold rises or falls by 50%, 
the same capital, in the first eventuality, will be worth 150 
p.st., which was previously worth only 100 p.st., and the profit 



Additional Remarks. 165 

will be worth 30 p.st., that is to say, it will be worth that 
much in money instead of 20 p.st., as before. In the second 
eventuality, the capital of 100 p.st, will be worth only 50 
p.st., and the profit will be represented by the value of 10 
p.st. But in either case 150 : 30 = 50": 10 = 100 : 20 = 
20%. But in all these cases there would have been no actual 
change in the magnitude of capital-value, but only in the 
money-expression of the same value and the same surplus- 
value. For this reason -^, or the rate of profit, could 
not be affected. 

The second case is that in which an actual change of mag- 
nitude takes place in the value, but without being accompanied 
by a change in the proportion of v to c, in other words, when 
the rate of surplus-value remains the same and the proportion 
of the variable capital invested in labor-power (considered as 
an index of the amount of labor-power set in motion) to the 
constant capital invested in means of production remains the 
same. Under these circumstances, we may have C, or nC, or 
•^ , for instance 1,000, or 2,000, or 500. If the rate of profit 
is 20%, the profit will be 200 in the first case, 400 in the 
second, and 100 in the third. But 200 : 1,000 = 400 : 2,000 
= 100 : 500 = 20%, that is to say the rate of profit remains 
unchanged, because the composition of capital remains the 
same and is not effected by its change of magnitude. An in- 
crease or decrease in the mass of profit shows therefore 
merely an increase or decrease in the magnitude of the in- 
vested capital. 

In the first case, then, there is but seemingly a change in 
the magnitude of the employed capital, while in the second 
case there is an actual change of magnitude, but no change 
in the organic composition of the capital, that is to say, in the 
relative proportions of the variable and constant portions. 
With the exception of these two cases, a change in the magni- 
tude of the employed capital is either the result of a preceding 
change of value in one of the components of capital, and there- 
fore of a change in the relative magnitudes of these compo- 
nents (unless the surplus-value itself varies with the variable 
capital) ; or, this change of magnitude (for instance in the 



1 66 Capitalist Production. 

case of enterprises on a large scale, the introduction of new 
machinery, etc.) is the caiise of a change in the relative mag- 
nitudes of the organic components of capital. In all these 
cases, other circumstances remaining unchanged, a change in 
the magnitude of the employed capital must he accompanied 
simultaneously by a change in the rate of profit. 



An increase in the rate of profit is always due to a rela- 
tive or absolute increase of the surplus-value in proportion to 
its cost of production, for instance to the advanced total capi- 
tal, or to a decrease in the difference between tlie rate of 
profit and the rate of surplus-value. 

Fluctuations in the rate of profit, independently of changes 
in the organic components of capital, or of the absolute mag- 
nitude of the capital, may occur through a rise or fall of the 
value of the advanced capital, whether it be fixed or circulat- 
ing, caused by a prolongation or reduction of the working time 
required for its reproduction, this change in the worl^ing 
time taking place independently of already existing capital. 
The value of every commodity, including the commodities of 
which capital consists, is determined, not by the necessary 
labor-time contained in it individually, but by the social labor- 
time necessary for its reproduction. This reproduction may 
take place under aggravating or under propitious circum- 
stances, which differ from the conditions of original produc- 
tion. If it takes under altered conditions double the time, or 
half as much time, to reproduce the same material capital, 
and if the value of money remained unchanged, then a capi- 
tal formerly worth 100 p.st. would be worth 200 p.st. or 50 
p.st. If this appreciation or depreciation were to affect all 
parts of capital uniformly, then the profit would also be ex- 
pressed correspondingly in double, or half, the amount of 
money. But if appreciation or depreciation imply a change in 
the organic composition of capital, if they imply a raising or 
lowering of the proportion between the variable and constant 
portions of capital, then the rate of profit, other circumstances 
remaining the same, will grow with a relatively gi'owing, and 
fall with a relatively falling, variable capital If only the 



Additional Remarks. 167 

money- value of the advanced capital rises or falls (in conse- 
quence of a change in the valuation of money) then the money- 
value of the surplus-value rises or falls in the same proportion. 
The rate of profit remains unchanged. 



PART II. 

COXVERSIOX OF PROFIT IXTO AVERAGE PROFIT. 



CHAPTER VIII. 

DIFFEKENT COMPOSITION OF CAPITALS IN DIFFERENT LINES OF 
PRODUCTION AND RESULTING DIFFERENCES IN THE RATES OF 
PROFIT. 

In the preceding part we demonstrated among other things 
tliat the rate of profit may vary, may rise or fall, while the 
rate of surplus-value remains the same. In the present chap- 
ter we assume that the intensity of exploitation, and there- 
fore the rate of surplus-value and the length of the working 
day, are the same in all spheres of production into w^hich the 
social labor of a certain country is divided. Adam Smith 
has already shown explicitly that many differences in the ex- 
ploitation of labor in different spheres of production balance 
one another by many actual causes, or causes regarded as such 
by prevailing prejudices, so that they are mere evanescent dis- 
tinctions and are of no moment in this calculation. Other 
differences, for instance those in the scale of wages, rest largely 
on the difference between simple and complicated labor, men- 
tioned in the beginning of volume I, which do not affect the 
intensity of exploitation in the different spheres of produc- 
tion, although they render the conditions of the labor"^rs in 
those spheres very unequal. For instance, if the labor of a 
goldsmith is paid better than that of a day-laborer, the sur- 
plus-labor of the goldsmith produces correspondingly more 
surplus-value than that of the day-laborer. And while the 
compensation of wages and working days, and thereby of the 
rates of surplus-value, between different spheres of produc- 
tion, or even different investments of capital in the same 

1 68 



Different Composition of Capitals. 169 

sphere of production, is checked bj many local obstacles, it is 
nevertheless accomplished at an increasing degree with the 
advance of capitalist production and the subordination of all 
economic conditions under this mode of production. The 
study of such frictions, while quite important for any special 
work on wages, may be dispensed with as being accidental and 
unessential in a general analysis of capitalist production. In 
such a general analysis it is always assumed that the actual 
conditions correspond to the terms used to express them, or, 
in otlier words, that actual conditions are represented only to 
the extent that they are typical of their own case. 

The difference in the rates of surplus-value in differeL<t 
countries, and consequently in the degree of national exploita- 
tion of, labor, is immaterial for our present analysis. Eor 
we desire to analyse precisely the way in which a general rate 
of profit is brought about in a certain country. It is evident, 
however, that a comparison of the various national rates of 
profit requires but a collation of previous analyses with that 
which is to follow. First consider the differences in the na- 
tional rates of surplus-value, then compare on this basis the 
differences in the national rates of profit. Those differences 
which are not due to differences in the national rates of sur- 
plus-value, must be due to circumstances in which the sur- 
plus-value is assumed to be universally the same, constant, as 
it is in the analysis of this chapter. 

We demonstrated in the preceding chapter that, assuming 
the rate of surplus-value to be constant, the rate of profit may 
rise or fall in consequence of circumstances which raise or 
lower the value of one or the other parts of constant capital, 
and so affect the proportion between the variable and constant 
components of capital in general. We observed, furthermore, 
that circumstances which prolong or reduce the time of turn- 
over of a certain capital may also influence the rate of profit 
in a similar manner. Since the mass of profits is identical 
with the mass of surplus-value, the surplus-value itself, it was 
also seen that the mass of profits, in distinction from the rate 
of profits, was not touched by the aforementioned fluctuations 
"ii value. These fluctuations modified merely the rate through 



I70 Capitalist Production. 

vTliicli a certain surplus-value, and therefore a profit of a 
given magnitude, express themselves, in other words, they in- 
dicate the relative magnitude of surplus-value, or profits, as 
comj^ared with the magnitude of the advanced capital. To 
the extent that capital was released or tied up by such fluc- 
tuations of value, it was not only the rate of profit, but the 
profit itself, which could be affected by this indirect route. 
However, this always applied only to such capital as was al- 
ready engaged, not to new investments about to be made. Be- 
sides, the increase or reduction of profit always depended 
on the extent to which the same capital could set in motion 
more or less labor in consequence of such fluctuations of value, 
in other words, the extent to which the same capital, with the 
same rate of surplus-value, could obtain a larger or smaller 
amount of surplus-value. So far from contradicting the gen- 
eral rule, or being an exception from it, this seeming excep- 
tion was really but a special case in the application of the 
general rule. 

It was seen in the preceding part, that the rate of profit 
varied, when the degree of exploitation was constant while the 
value of the component parts of constant capital, and the time 
of turn-over of caj)ital, changed. The obvious conclusion 
from this was that the rates of profit of different spheres of 
production existing simultaneously side by side had to differ, 
when, other circumstances remaining unchanged, the time of 
turn-over of the invested capitals differed, or when the pro- 
portions of the values of the organic components of tliese cap- 
itals were different in the different lines of production. That 
which we previously regarded as changes occurring succes- 
sively in the same capital will now be considered as simul- 
taneous differences of contemporaneous investments of capital 
in different spheres of production. 

Under these circumstances we shall have to analyse: 1) 
The differences in the organic composition of capitals. 2) 
The differences in their times of turn-over. 

The natural premise in this entire analysis is that, in 
speaking of the composition, or of the turn-over, of a capi- 
tal in a certain line of production, we always mean the aver- 



Different Composition of Capitals. lyi 

age normal proportions of the capital invested in this line, or, 
more generally, of the average of the total capital invested in 
this sphere, not of the temporary differences of the individual 
capitals in it. 

Since our assumption is, furthermore, that the rate of sur- 
plus-value and the working day are constant, and since this 
assumption implies also the constancy of wages, it follows 
that a certain quantity of variable capital expresses a definite 
quantity of exploited labor-power and therefore a definite 
quantity of materialised labor. In other words, if 100 p.st. 
represent the weekly wages of 100 laborers, indicating 100 ac- 
tual labor-powers, then n times 100 p.st. indicates the labor- 
powers of n times 100 laborers, and ^^ p.st. those of ~ 
laborers. The variable capital serves here, as is always the 
case when the wages are 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 indices of the differences in the amount of labor- 
power set in motion. If 100 p.st. indicate 100 laborers per 
week, representing 6,000 working hours, if the weekly work- 
ing time is 60 hours, then 200 p.st. indicate 12,000, and 50 
p.st. indicate 3,000 working hours. 

By the composition of capital we mean, as we have stated 
in volume I, the proportions of its active and passive parts, of 
variable and constant capital. Two proportions require con- 
sideration under this heading. They are not equally impor- 
tant, although they may produce the same effects under certain 
circumstances. 

The first proportion rests on a technical basis, and must 
be considered as existing 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 for 
the purpose of producing a definite quantity of products, for 
instance in one day, and thereby to consume productively, 
by setting in motion, a definite quantity of means of produc- 
tion, machinery, raw materials, etc. A definite number of 
laborers corresponds to a definite quantity of means of pro- 
duction, so that a definite quantity of living labor corresponds 



1^2 Capitalist Production. 

to a definite quantity of materialised labor in means of pro- 
duction. This proportion differs a great deal in different 
spheres of production, and frequently even in different 
branches of one and the same industry. On the other hand, 
it may occasionally be entirely or approximately the same in 
widely separated lines of industry. 

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

However, it is possible that this first proportion may bs 
the same in different lines of industry, provided that the vari- 
able capital is merely an index of labor-power, and the con- 
stant caj^ital merely an index of the mass of means of produc- 
tion set in motion by the labor-power. For instance, certain 
work in copper and iron may be conditioned on the same pro- 
portional composition between labor-power and the mass of 
means of production. But since copper is more expensive 
than iron, the proportion of value between variable and con- 
stant capital may be different in either case^ and then the 
composition of the value of the total capitals is, of course, 
likewise different. The difference between the technical coui- 
position and the composition of values is manifested by earh 
branch of industry by tlie fact that the proportion of ti.e 
values of the two parts of capital may vary while the tech- 
nical composition is constant, and the proportion of values 
may remain the same while the technical composition varies. 
This last eventuality will, of course, be possible only if the 
change in the proportion of the employed masses of means of 
production and labor-power is compensated by an opposite 
change in their values. 

The composition of the values of capital, which is deter- 
mined by, and reflects, its technical composition, is called the 
organic composition of capital.^^ 

We assume, then, that the variable capital is the index of 
a definite quantity of laborers, or of labor-power, or a definite 
quantity of living labor set in motion. We saw in the preced- 

*• The above is briefly developed in the third edition of volume I, in the begin- 
ning of chapter XXV. Since the two first editions did not contain this passage, 
it was so much more necessary to repeat it at this place. — F. E. 



i 
1 



Different Composition of Capitals. 173 

ing i3art that a change in the magnitude of the value of varia- 
ble 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 have been as- 
sumed to be constant, and the wages for a definite working 
time 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. 
Still, it may also be due to a difference in value between the 
means of production set in motion in one sphere and those of 
another. Both points of view must be considered here. 

Finally, the following essential facts must be taken into 
account : 

Take it that 100 p.st. are the weekly wages of 100 laborers. 
Take it that the working hours are 60 per week. Take it, 
furthermore, that the rate of surplus-value is 100%. In that 
case, the laborers work .30 of the 60 hours for themselves, and 
30 hours gratis for the capitalist. In fact, those 100 p.st. of 
wages represent only 30 working hours of those 100 laborers, 
or a total of 3,000 working hours, while the other 3,000 hours 
worked by the laborers are incorporated in the 100 p.st. of 
surplus-value, or as profit, pocketed by the capitalist. Al- 
though the wages of 100 p.st. do not express the value in 
which the weekly labor of those 100 laborers is materialised, 
still they indicate (since the length of the working day and 
the rate of surplus-value are given) that this capital set in 
motion 100 laborers for 6,000 working hours. The capital 
of 100 p.st. indicates this, first, because it indicates the num- 
ber of laborers set in motion, since one pound sterling stands 
for one laborer per week, and 100 p.st. for 100 laborers per 
week ; and in the second place, because every laborer set in 
motion performs twice the work for which his wages pay, at 
the given rate of surplus-value of 100%, so that one pound 
sterling, his wages, the expression of half a week of labor, 
actually set in motion one whole week's labor, and in the same 
way 100 p.st., although they pay only for 50 weeks of labor, 
set in motion 100 weeks of labor. There is, then, an essen- 



174 Capitalist Production. 

tial difference between variable capital so far as its value, in- 
vested as a wages-capital, represents a certain sum of wages, 
a definite quantity of materialised labor, and variable capital 
so far as its value is a mere index of the quantity of living 
labor set in motion by it. This last-named labor is always 
greater than that incorporated in the variable capital, and 
is, therefore, represented by a greater value than that of the 
variable capital. This greater value is determined on one 
hand by the number of laborers set in motion by the variable 
capital, and on the other by the quantity of surplus-labor per- 
formed by them. 

This mode of looking upon variable capital leads to the fol- 
lowing conclusions : 

When a capital invested in the sphere of production A ex- 
pends only 100 in variable capital for each 700 of total cap- 
ital, leaving COO for constant capital, while a capital invested 
in the sphere of production B expends 600 for variable and 
only 100 for constant capital, then the capital of TOO in A 
will set in motion only 100 of labor-power, or, in terms of 
our previous assumption, 100 weeks of labor, or 6,000 hours 
of living labor, while the same amount of capital in B will set 
in motion 600 weeks of labor or 36,000 hours of living labor. 
The capital in A would then appropriate only 50 weeks of 
labor, or 3,000 hours of surplus-labor, while the same amount 
of capital in B would appropriate 300 wrecks of labor, 
or 18,000 hours. The variable capital is the index^ not 
only of the labor embodied in it, but also, when the rate 
of surplus-value is known, of the labor set in motion over and 
above that embodied in itself, in other words, of the surplus- 
labor. With the same intensity of exploitation, the profit in 
the first case avouM be ^^, or j, or 14cj%, and in the second 
case ffl", or -f-, or 85 y%, six times the rate of profit of the 
first. In this case, the profit itself would actually be six 
times that of A, 600 in B as against 100 in A, because the 
same capital set in motion six times the quantity of living 
labor, which, with the same degree of exploitation, means 
six times as much surplus-value and thus six times as much 
profit. 



Different Composition of Capitals. 175 

If the capital invested in A were not 700, but 7,000 p.st., 
while that invested in B were only 700 p.st., and the organic 
composition of both were to remain the same, then the capi- 
tal in A would expend 1,000 p.st. of the 7,000 as variable 
capital, that is to say, it would employ 1,000 laborers per 
week at 60,000 hours of living labor, of which 30,000 would 
be surplus-labor. But yet each 700 p.st. of the capital in A 
w'ould continue to set in motion only one-sixth of the surplus- 
labor of the capital in B, and produce only one-sixth of the 
profit of this capital. If we consider the rate of profit, then 
tI"¥0'> 01* TTT? o^^' l^f%7 would be the rate of the capital in A, 
compared with f-g-^, or 85f %, of the capital in B. Taking 
equal amounts of capital for comparison, the rates of profit 
difl^er here, because the masses of surplus-vakie, and thus of 
profits, differ, although the rates of surplus-value are the 
same, owing to the different masses of living labor set in mo- 
tion. 

The same result follows, if the technical conditions are 
the same in both spheres of production, while the value of the 
elements of constant capital is greater or smaller in the one 
than in the other. Let us assume that both invest 100 p.st. 
in variable capital and employ 100 laborers per week, which 
set in motion the same quantity of machinery and raw ma- 
terials. But let the last-named elements of production be 
more expensive in B than in A. For instance, let the 100 
p.st. of variable capital in A set in motion 200 p.st. of 
constant capital, and in B 400 p.st. of constant cap- 
ital. With tlie same rate of surplus-value, 100%, the sur- 
plus-value produced is in either case 100 p.st. Hence 
the profit is also 100 p.st. But the rate of profit in A is 
2ooc°?oov>OJ^i or 33^%, while in B U is^ m^y, ^Y \, or 
20%. In fact, if we select a certain aliquot part of the 
total capital from either side, we find that every 100 p.st. in 
B sets aside only 20 p.st., or one-fifth, for variable capital, 
while every 100 p.st. in A sets aside 33g% p.st., or one-third, 
for this purpose. B produces less profit to each 100 p.st., 
because it sets in motion less living labor than A. The differ- 



\j6 Capitalist Production. 

ence in the rates of profits resolves itself once more, in this 
case, into a difference of the masses of surplus-value, and thus 
masses of profit, produced per each 100 of capital invested. 

The difference of this second example from the first is just 
this: The compensation 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 re- 
mained the same. But in the first case, the technical basis 
itself is different, and would have to be revolutionised in 
order to consummate a compensation. 

The different organic composition of various capitals, then, 
is independent of their absolute magnitude. It is always 
but a question of what part of every 100 is variable and wh.:t 
part constant. 

Capitals of different magnitude, calculated in percentages, 
or, what amounts to the same in this case, capitals of the 
same magnitude, working with the same working time and 
the same degree of exploitation, may produce considerably 
different amounts of surplus-value, and thus of profit, for 
the reason that a difference in the organic composition of cap- 
ital in different spheres of production implies a difference in 
their variable parts, and thus a difference in the quantities 
of living labor set in motion by them, which implies a differ- 
ence in the quantities of surplus-labor appropriated by them. 
And this surplus-labor is the substance of surplus-value and 
of profit. Equal portions of the total capital in the various 
spheres of production comprise the sources of unequal por- 
tions of surplus-value, and the only source of surplus-value 
is living labor. With the same degree of labor-exploitatinn 
the mass of labor set in motion by a capital of 100, and con- 
sequently the mass of surplus-value appropriated by it, de- 
pend on the magnitude of its variable component. If a cap- 
ital, consisting of percentages of 90 c -|- 10 v, produced as 
much surplus-value, or profit, wath the same degree of exploi- 
tation, as a capital consisting of percentages of 10 c -|- 90 v, 
then it would be as plain as da;y light that the surplus-value, 
and value in general, must have an entirely different source 
than labor, and that political economy would then be without 



Different Composition of Capitals. 177 

a rational basis. If we assume continuallj that one pound 
sterling stands for the weekly wages of a laborer working 
60 hours, and that tlie rate of surplus-value is 100%, then it 
is evident that the total product in values which one laborer 
can supply in one week, is 2 p.st. Then 10 laborers cannot 
supply more than 20 p.st. And since 10 p.st. of the 20 re- 
produce the wages, those 10 laborers cannot produce any more 
surplus-value than 10 p.st. On the other hand the 90 labor- 
ers, whose total product is 180 p.st., and whose wages amount 
to 90 p.st., produce a surplus-value of 90 p.st. The rate of 
profit in the one case would be 10%, in the other 90%. If 
matters were different, then value and suri^lus-value would 
be something else than materialised labor. Seeing, then, that 
capitals in different spheres of production, calculated in per- 
centages — or capitals of equal magnitude — are differently 
divided into variable and constant capital, so that they set in 
motion unequal quantities of living labor and produce differ- 
ent surplus-values, and profits, it follows that the rate of 
profit, which consists precisely of the calculation of the per- 
centage of surplus-value on the total capital, must also differ. 
ISTow, if capitals in different spheres of production, calcu- 
lated in percentages, in other words, caj^itals of equal magni- 
tude, produce unequal profits in different spheres of produc- 
tion, 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 the magni- 
tude of tlieir respective capitals, or, in slightly different 
words, profits in different spheres of production are not pro- 
portional to the magnitude of the respective capitals invested 
in them. For if profits were to grow at the rate of the invest- 
ment of capital, it would mean that the percentage of profits 
was the same, so that capitals of equal magnitude in different 
spheres of production would have equal rates of profit, in 
spite of their different organic composition. Only within the 
same sphere of production, in which the organic composition 
of capital is known, or in different spheres of production with 
the same organic composition of capitals, do the masses of 
profits stand in direct ratio to the masses of capitals invested. 



178 Capitalist Production. 

To say that the profits of capitals of different magnitude are 
proportional to their magnitudes is only another way of say- 
ing that capitals of equal magnitude yield equal profits, or 
that the rate of profits is the same for all capitals, whatever 
may be their organic composition and their magiiitude. 

These statements hold good on the assumption that the com- 
modities 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 of this variable capital, which increment is the 
surplus-value. With the same rate of surplus-value, its mass 
evidently depends on the mass of the variable capital. The 
value of the product of a capital of 100 is in the one case 
90 c + 10 V + 10 s, or 110, in the other 10 c -f 90 v -f 90 s, 
or 190. If the commodities are sold at their values, then the 
first product is sold at 110, of which 10 represent surplus- 
value, or unpaid labor; the second product is sold at 190, of 
which 90 represent surplus-value, or unpaid labor. 

This is especially important when international rates of 
profit are compared with one another. Let us assume that 
the rate of surplus-value in some European country is 100%, 
so that the laborer works one-half of the working day for 
himself and the other half for his employer. Let us assume, 
furthermore, that the rate of p.^^ in some Asiatic country is 
25%, so that the laborer works four-fifths of the working day 
for himself, and one-fifth for his employer. Let the compo- 
sition of the national capital in the European country be 
8-1 c -|- 16 V, that of the national capital of the Asiatic coun- 
try, where little machinery, etc., is used, and a given quantity 
of labor-power consumes relatively little raw material produc- 
tively in a given time, 16 c -j- 84 v. Then we have the fol- 
lowing calculation : 

In the European country: Value of product 84 c + IC v 
+ 16 s, or 116; rate of profit tVu". or 16%. 

In the Asiatic country: Value of product 16 c + 84 v -j- 
21s, or 121; rate of profit ^V. or 21%. 

The rate of profit in the Asiatic country is higher by more 
than 25% than in the European country, although the rate 



Different Composition of Capitals. 179 

of surplus-value is four times smaller in the former than in 
the latter. Men like Carej, Bastiat, and others, would come 
to the opposite conclusion. 

Bj the way, different national rates of profit will generally 
be based on different national' rates of surplus-value. But 
we compare in this chapter unequal rates of profit resting on 
the same rate of surplus-value. 

Aside from differences of organic composition of capitals, 
which imply different masses of labor, and consequently, 
other circumstances remaining the same, of surplus-labor, 
which set in motion capitals of the same magnitude in differ- 
ent spheres of production, there is still another source for the 
inequality of rates of profit. This is the different length of 
the time of turn-over of capital in different spheres of pro- 
duction. We have seen in chapter IV that, other circum- 
stances being the same, the rates of profits of capitals of the 
same organic composition are proportioned inversely as their 
times of turn-over. We have also seen that the same variable 
capital, if turned over in different periods of time, produces 
unequal masses of annual surplus-value. The difference of 
the times of turn-over, then, is another reason why capitals 
of the same magnitude in different spheres of production do 
not produce equal profits in equal times, and why the rates of 
profit in these different spheres differ. 

On the other hand, the proportional composition of capitals 
as to fixed and circulating capital does not in itself affect the 
rate of profit. It can affect this rate only in the case that 
this difference in composition either coincides Avith a different 
proportion of the variable and constant parts so that the differ- 
ence in the rate of profit is due to this difference in organic 
composition, and not to the different proportions between 
fixed and circulating capital ; or, if the difference in the pro- 
portion of fixed and circulating capital is responsible for a 
difference in the time of turn-over, during which a certain 
profit is realised. If capitals are divided into fixed and cir- 
culating capital in different proportions, it will, of course, al- 
ways have an influence on the time of turn-over and cause 
differences in it. But this does not imply that the time of 



i8o Capitalist Production. 

turn-over, in which the same capitals realise certain profits, is 
different. For instance, A may have to convert the greater 
part of its product continually into raw materials, etc., while 
B may use the same machinery, etc., for a longer time, and 
need less raw material, but both A and B have a part of their 
capital engaged so long as they are producing; the one in raw 
materials, that is to say circulating capital, the other in ma- 
chinery, etc., or fixed capital. The capitalist in A contin- 
ually converts a portion of his capital from commodities into 
money, and this into raw materials, while the capitalist in 
B employs a portion of his capital for a longer time as an 
instrument of labor without any such conversions. If b th 
of them employ the same amount of labor, they will sl'11 
masses of products of unequal value during the year, but both 
masses of products will contain the same amount of surplus- 
value, and their rates of profit, calculated on the entire capi- 
tal invested, will be the same, although their proportional 
composition of fixed and circulating capital, and their times 
of turn-over, are different. Both capitals realise equal profits 
in equal times, although they are turned over in different pe- 
riods of time.^^ The difference in the time of turn-over has 
in itself no importance except so far as it affects the mass 
of surplus-value which may be appropriated and realized by 
the same capital in a certain time. Seeing that a different 
distribution of the fixed and circulating capital of A and B 
does not necessarily imply a different time of turn-over, which 
would in its turn imply a different rate of profit, it is evi- 
dent, if there is such a difference in the rates of profit of A 
and B, that it is not due to a difference in the proportions of 

^^ It follows from chapter IV that the above statement is correct only in the 
case that the capitals of A and B are differently composed so far as their values 
are concerned, but that the percentages of their variable capitals are proportioned 
-as their times of turn-over, or inversely as their numbers of turn-over. Let 
capital A have the following percentages of composition: 20c fixed and 70 c cir- 
culating, a total of 90 c, so that the total capital is 90 c -j- 10 v, or 100. At a rate 
or surplus value of 100% the 10 v produce in one turn-over 10 s, making the rate 
of profit for one turn-over 10%. Let capital B have the composition 60 C fixed and 
20c circulating, so that we have 80 c -|- 20 v, or 100. The 20 v produce in one 
turn-over, at the above rate of surplus-Talue, 20 s , making the rate of profit for 
one turn-over 20%, which is double that of A. But if A is turned over twice 
5»er year, and B only once, then 2 X 10 also make 20 per year, and the annual 
rate of profit is the same for both, namely 20%. — F. E. 



Different Composition of Capitals. t.8i 

fixed and circulating capital as such, but rather to the fact 
that these different proportions indicate an inequality in the 
times of turn-over affecting the rates of profit. 

It follo^vs, then, that a difference in the composition of 
capitals in various lines of production, referring to their fixed 
and circulating portions, has in itself no bearing on the rate 
of profit, since it is the proportion between the constant and 
variable capital which decides this question, and since the 
value of the constant capital, and its relative magnitude as 
compared to that of the variable, is quite independent of the 
fixed or circulating nature of its components. But it will be 
found — and this is one of the causes of wrong conclusions — 
that whenever fixed capital is considerably developed, it is 
but an expression of the fact that production is carried on at 
a large scale, so that the constant capital far outweighs the 
variable, or the living labor-power employed is trifling com- 
pared to the mass of the means of production set in motion 
by it. 

We have demonstrated, that different lines of industry may 
have different rates of profit, corresponding to differences in 
the organic composition of capitals, and, within the limits in- 
dicated, also corresponding to different times of turn-over; 
the law (as a general tendency) that profits are proportioned 
as the magnitudes of the capitals, or that capitals of equal 
magnitude yield equal profits in equal times, applies only 
to capitals of the same organic composition, with the same 
rate of surplus-value, and the same time of turn-over. And 
these statements hold good on the assumption, which has been 
the basis of all our analyses so far, namely that the commodi- 
ties are sold at their values. On the other hand there is no 
doubt that, aside from unessential, accidental, and mutually 
compensating distinctions, a difference in the average rate of 
profit of the various lines of industry does not exist in real- 
ity, and could not exist without abolishing the entire system 
of capitalist production. It would seem, then, as though the 
theory of value were irreconcilable at this point with the 
actual process, irreconcilable with the real phenomena of pro- 



i82 Capitalist Production. 

duction, so that we should have to give up the attempt to 
understand these j^henomena. 

It follows from the first part of tliis volume that the cost- 
piyces are the same for the products of different spheres of 
production, in which equal portions of capital have been in- 
vested for purposes of i^roduction, regardless of the organic 
composition of such capitals. The cost-price does not show 
the distinction between variable and constant capital to the 
capitalist. A commodity for which he must advance 100 p.st. 
in production cost him the same amount, whether he invests 
90 c + 10 V, or 10 c + 90 v. He always spends 100 p.st. for 
it, no more, no less. The cost-prices are the same for invest- 
ments of the same amounts of capital in different spheres, no 
matter how much the produced values and surplus-values may 
differ. The equality of cost-prices is the basis for the compe- 
tition of the invested capitals, by which an average rate of 
profit is brought about. 



CHAPTER IX. 



FORMATION OF A GENERAL RATE OF PROFIT (AVERAGE RATE 
OF profit) and TRANSFORMATION OF THE VALUES OF COM- 
MODITIES INTO PRICES OF PRODUCTION 

The organic composition of capital depends at each stage on 
two circumstances: First, on the technical relation of the 
employed labor-power to the mass of the employed means of 
production; secondly, on the price of these means of produc- 
tion. We have seen that this composition must be considered 
according to its percentages. We express the organic compo- 
sition of a certain capital, consisting of four-fifths of con- 
stant, and one-fifth of variable capital, by the formula 80 c 
-{- 20 V. We furthermore assume in this comparison that 
the rate of surplus-value is unchangeable. Let it be, for in- 
stance, 100%. The capital of 80 c + 20 v then produces a 
surplus-value of 20 s, and this is equal to a rate of profit of 
20% on the total capital. The magnitude of the actual value 



Formation of Average Rate of Profit. 



183 



of the product of this capital depends on the magnitude of 
the fixed part of the constant capital, and on the amount of it 
passing by wear and tear over to the product. But as this 
circumstance is immaterial so far as the rate of profit and the 
present analysis are concerned, we assume for the sake of 
simplicity that the constant capital is transferred everywhere 
uniformly and entirely to the annual product of the capitals 
named. It is further assumed that these capitals realise equal , 
quantities of surplus-value in the different spheres of pro- 
duction, proportional to the magnitude of their variable parts. 
In other words, we disregard for the present the difference 
which may be produced in this respect by the different lengths 
of the periods of turn-over. This point will be discussed 
later. 

Let us compare five different spheres of production, and 
let the capital in each one have a different organic composi- 
tion, as follows : 



Capitals 


Rate of Surplus 
Value 


Surplus 

Value 


Value of 
Product 


Rate of 
Profit 


I. 80 c 20 V 

II. 70 c 30 V 

III. 60 c 40 V 

IV. 85 c 15 V 
v. 95 c 5 V 


100% 
100% 
100% 
100% 
100% 


20 
30 
40 
15 
5 


120 
130 
140 
115 
105 


20% 
30% 
40% 
15% 

5% 



Here we have considerably different rates of profit in 
different spheres of production with the same degree of ex- 
ploitation, corresponding to the different organic composition 
of these capitals. 

The grand total of the capitals invested in these five 
spheres of production is 500 ; the grand total of the surplus- 
value produced by them is 110 ; the total value of all com- 
modities produced by them is 610. If we consider the 
amount of .500 as one single capital, and capitals I to V as its 
component parts (about analogous to the different depart- 
ments of a cotton mill which has different proportions of con- 
stant and variable capital in its carding, preparatory spin- 
ning, spinning, and weaving rooms, on the basis of which the 
average proportion for the whole factory is calculated), then 
we should put down the average composition of this capital of 



184 Capitalist Production. 

500 as 390c-|-110v, or, in percentages, as 78 c + 22 v. 
In other words, if we regard each one of the capitals of 100 
as one-fifth of the total capital, its average composition would 
be T8 c -f- 22 V ; and every 100 would make an average sur- 
plus-value of 22. The average rate of profit would, there- 
fore, be 22%, and, finally, the price of every fifth of the total 
product produced by the capital of 500 would be 122. The 
jiroduct of each 100 of the advanced total capital would have 
to be sold, then, at 122. 

But in order not to arrive at entirely wrong conclusions, it 
is necessary to assume that not all cost-prices are equal to 100, 

With a composition of 80 c + 20 v, and a rate of surplus- 
value of 100, the total value of the commodities produced by 
the first capital of 100 would be 80 c + 20 v + 20 s, or 120, 
provided that the whole constant capital is tranferred to the 
product of the year. I^ow, this may happen under certain 
circumstances in some spheres of production. But it will 
hardly be the case where the proportion of c to v is that of 
four to one. We must, therefore, remember in comparing the 
values produced by each 100 of the different capitals, that 
they will differ according to i.he different composition of c as 
to fixed and circulating parts, and that the fixed portions of 
different capitals will wear out more or less rapidly, thus 
transferring unequal quantities of value to the product in 
equal periods of time. But this is immaterial so far as the 
rate of profit is concerned. Whether the 80 c transfer the 
value of 80, or 50, or 5, to the annual product, whether the 
annual product is consequently 80 c -f- 20 v -]- 20 s = 120, 
or 50 c 4- 20 V + 20 s =. 90, or 5 c -f 20 v + 20 s = 45, in 
all of these cases the excess of the value of the product over 
its cost-price is 20, and in every case these 20 are calculated 
on a capital of 100 in ascertaining the rate of profit. The 
rate of profit of capital I is, therefore, in every case 20%. 
In order to make this still plainer, we transfer in the follow- 
ing table different portions of the constant caj^ital of the 
same five capitals to the value of their product. 

Now, if we consider capitals I to V once more as one single 
total capital, it will be seen that also in this case the compo- 



I 



Formation of Average Rate of Profit. 



185 



Capitals 


Rate of 

Surplus 
Value 


Surplus 
Value 


Rate of 

Profit 


Used 

Up 

c 


Value of 
Commod- 
ities 


Cost 
Price 




I. 80c+20v 

II. 70c + 30v 

III. 60 c +40 V 

IV. 85 c + 15v 

V. S5 c + 5 V 


100% 
100% 
100% 
100% 
100% 


20 
30 
40 
15 
5 


20% 
30% 
40% 

5% 


50 
51 
51 
40 
10 


90 
111 
131 
70 
20 


70 

81 
91 
55 
15 




390 c +110 V 




110 


iOo% 








Total 


78 c + 22 V 




22 


22% 








Average 



sition of the sums of these five capitals amounts to 500, being 
390c -|- 110 V, so that the average composition is once more 
78 c + 22 V. The average surplus-value also remains 2-2%;. 
If we allot this surplus-value uniformly to capitals I to V, we 
arrive at the following prices of the commodities: 



Capitals 


Surplus 
\'alue 


Value 


CostPrice 
of commod- 
ities 


Price of 
Commod- 
ities 


Rate of 

Profit 


Deviation of Price 
From Value 


I. 80c + 20v 

II. 70 c + 30 V 

III. 60 c +40 V 

IV. 85 c + 15v 

V. 95c + 5 V 


20 
30 
40 
15 
5 


90 
111 
131 
70 
20 


70 
81 
91 
55 
15 


92 
103 
113 

77 
37 


22% 
22% 
22% 
22% 
22% 


+ 2 
- 8 
-18 

+ 7 
+ 17 



Summing up, we find that the commodities are sold at 
2 + 7 + 17 = 26 above, and 8 + 18 = 26 below their value, 
so that the deviations of prices from values mutually balance 
one another by the uniform distribution of the surplus-value, 
or by the addition of the average profit of 22 per 100 of ad- 
vanced capital to the respective cost-prices of the commodi- 
ties of I to V. One portion of the commodities is sold in the 
same proportion above in which the other is sold below their 
values. And it is only their sale at such prices which makes 
it possible that the rate of profit for all five capitals is uni- 
formly 22%, without regard to the organic composition of 
these capitals. The prices which arise by drawing the aver- 
age of the various rates of profit in the different spheres of 
production and adding this average to the cost-prices of the 
different spheres of production, are the prices of production. 
They are conditioned on the existence of an average rate of 
profit, and this, again, rests on the premise that the rates of 
profit in every sphere of production, considered by itself, have 
previously been reduced to so many average rates of profit. 



1 86 Capitalist Production. 

These special rates of profit are equal to -^ in every sphere 
of production, and they must be deduced out of the values 
of the commoditiesj as shown in volume I. Without such a 
deduction an average rate of profit (and consequently a price 
of production of commodities), remains a vague and senseless 
conception. The price of production of a commodity, then, 
is equal to its cost-price plus a percentage of profit appor- 
tioned according to the average rate of profit, or in other 
words, equal to its cost-price plus the average profit. 

Since the capitals invested in the various lines of pro- 
duction are of a difi^erent organic composition, and since the 
different percentages of the variable portions of these total 
capitals set in motion very different quantities of labor, it 
follows that these capitals appropriate very different quanti- 
ties of surplus-labor, or produce very different quantities of 
surj-jlus-value. Consequently the rates of profit prevailing in 
the various lines of production are originally very different. 
These different rates of profit are equalised by means of com- 
petition into a general rate of profit, which is the average of 
all these special rates of profit. The profit allotted according 
to this average rate of profit to any capital, whatever may be 
its organic composition, is called the average profit. That price 
of any commodity which is equal to its cost-price plus that 
share of average profit on the total capital invested (not merely 
consumed) in its production which is allotted to it in pro- 
portion to its conditions of turn-over, is called its price of 
production. Take, for instance, a capital of 500, of which 
100 are fixed capital, and let 10% of this wear out during 
one turn-over of the circulating capital of 400. Let the aver- 
age profit for the time of this turn-over be 10%. In that case 
the cost-price of the product created during this turn-over 
will be 10 c (wear) -\- 400 (c -j- v), cii^culating capital, or a 
total of 410, and its price of production will be 410 (cost- 
price) plus 10% of average profit on 500, or a total of 460. 

While the capitalists in the various spheres of production 
recover the value of the capital consumed in the production 
of their commodities through the sale of these, they do not 
secure the surplus-value, and consequently the profit, created 



Formation of Average Rate of Profit. 187 

in their own sphere by the production of these commodities, 
but only as much surplus-value, and profit, as falls to the 
share of every aliquot part of the total social capital out of the 
total social surjolus-value, or social profit produced by the total 
capital of society in all spheres of production. Every 100 
of any invested capital, whatever may be its organic compo- 
sition, draws as much profit during one year, or any other 
period of time, as falls to the share of every 100 of tlie total 
social capital during the same period. The various capital- 
ists, so far as profits are concerned, are so many stockholders 
in a stock company in which the shares of profit are uniformly 
divided for every 100 shares of capital, so that profits differ 
in the case of the individual capitalists only according to the 
amount of capital invested by each one of them in the social 
enterprise, according to his investment in social production as 
a whole, according to his shares. That portion of the price 
of commodities which buys back the elements of capital con- 
sumed in the production of these commodities, in other words, 
their cost-price, depends on the investment of capital required 
in each particular sphere of production. But the other ele- 
ment of the price of commodities, the percentage of profit 
added to this cost-price, does not depend on the mass of profit 
produced by a certain capital during a definite time in its 
own sphere of production, but on the mass of profit allotted 
for any period to each individual capital in its capacity as 
an aliquot part of the total social capital invested in social 
production. ^^ 

A capitalist selling his commodities at their price of pro- 
duction recovers money in proportion, to the value of the capi- 
tal consumed in their production and secures profits in pro- 
portion to the aliquot part which his capital represents in the 
total social capital. His cost-prices are specific. But the 
profit added to his cost-prices is independent of his particular 
sphere of production, for it is a simple average per 100 of in- 
vested capital. 

Let us assume that the five different investments of capi- 
tal named I to V in the foregoing illustrations belong to one 

^ Cherbuliez. 



1 88 Capitalist Production. 

man. The quantity of variable and constant capital con- 
sumed for each 100 of the invested capitals in the production 
of commodities would be known, and these portions of the 
value of the commodities of I to V would make up a part of 
their price, since at least this price is required to recover the 
consumed portions of the invested capital. These cost-prices 
would be different for each class of the commodities I to V, 
and the owner would therefore mark them differently. But 
the different masses of surplus-value, or profit, produced by 
capitals I to V might easily be regarded by the capitalist a? 
profits of his aggregate capital, so that each 100 would get 
its proportional quota. The cost-prices of the commodities 
produced in the various deiDartments I to V would be differ- 
ent; but that portion of their selling price which comes from 
the addition of the profit for each 100 of capital would be 
the same for all these commodities. The aggregate price of 
the commodities of I to V vvould be equal to their aggregate 
value, that is to say, it would be equal to the sum of the cost- 
prices of I to V plus the sum of the surplus-values, or profits, 
produced in I to V. It would actually be the money-expres- 
sion of the total quantity of past and present labor incorpo- 
rated in the commodities of I to V. And in the same way the 
sum of all the prices of production of all commodities in so- 
ciety, comprising the totality of all lines of production, is 
equal to the sum of all their values. 

This statement seems to be contradicted by the fact that 
under capitalist production the elements of productive cap- 
ital are, as a rule, bought on the market, so that their prices 
include profits which have already been realised. Accord- 
ingly, the price of production of one line of production passes, 
with the profit contained in it, over into the cost-price of an- 
other line of production. But if we place the sum of the 
cost-prices of the whole country on one side, and the sum of 
its surplus-values, or profits, on the other, it is evident that 
the calculation must come out right. For instance, take a 
certain commodity A. Its cost-price may contain the profits 
of B, C, D, etc., or the cost-prices of B, C, D, etc., may con- 
tain the profits of A. Now, if we make our calculation, the 



Formation of Average Rate of Profit 189 

profits of A will not be included in its cost-price, nor will the 
profits of B, C, D, etc., be figured in with their own cost- 
prices. No one figures his own profit in his own cost-price. 
If there are n spheres of production, and every one of them 
makes a profit of p, then the aggregate cost-price of all of 
them is equal to k — np. Taking the calculation as a whole 
we see that the profits of one sphere which pass into the cost- 
prices of another have been placed on one side of the account 
showing the total price of the ultimate product, and so cannot 
be placed a second time on the profit side. If any do appear 
on this side, it can be only because this particular commodity 
was itself the ultimate product, so that its price of produc- 
tion did not pass into the cost-price of some other commodity. 

If an amount equal to p, expressing the profits of the pro- 
ducers of means of production, passes into the cost-price of a 
commodity, and if a profit equal to p' is added to this cost- 
price, then the aggregate profit P is equal to p -f- p^ The 
aggregate cost-price of a commodity, after deducting all 
amounts for profit, is in that case its own cost-price minus P. 
If this cost-price is called k, then it is evident that k -j- P = 
k -|- P + p'> We have seen in volume I, chapter IX, 2, that 
the product of every capital may be treated as though a part 
of it reproduced only capital, while the other part represented 
only surplus-value. Applying this mode of calculation to 
the aggregate product of society, it is necessary to make some 
rectifications. For, looking upon society as a whole, it would 
be a mistake to figure, say, the profit contained in the price 
of flax twice. It should not be counted as a portion of the 
price of linen and at the same time as the profit of the pro- 
ducers of flax. 

To the extent that the surplus-value of A passes into the 
constant capital of B, there is no difference between surplus- 
value and profit. It is quite immaterial for the value of the 
commodities, Avhether the labor contained in them is paid or 
unpaid. We see merely that B pays for the surplus-value of 
A. But the surplus-value of A cannot be counted twice in 
the total calculation. 

The essential difference is this: Aside from the fact that 



190 Capitalist Production. 

the price of a certain product, for instance the product of cap- 
ital B, differs from its value, because the surplus-value real- 
ized in B may be greater or smaller than the profit of others 
contained in the product of B, the same fact applies also to 
those commodities which form the constant part of its capital, 
and which indirectly, as necessities of life for the laborers, 
form its variable part. So far as the constant part is con- 
cerned, it is itself equal to the cost-price plus surplus-value, 
which now means cost-price plus profit, and this profit may 
again be greater or smaller than the surplus-value in whose 
phice it stands. And so far as the variable capital is con- 
cerned, it is tiiie that the average daily wage is equal to the 
values produced by the laborers in the time which they must 
work in order to produce their necessities of life. But this 
time is in its turn modified by the deviation of the prices of 
production of the necessities of life from their values. How- 
ever, this always amounts in the end to saying' that one com- 
modity receives too little of the surplus-value while another 
receives too much, so that the deviations from the value shown 
by the prices of production mutually compensate one another. 
In short, under capitalist production, the general law of value 
enforces itself merely as the prevailing tendency, in a very 
complicated and approximate manner, as a never ascertain- 
able average of ceaseless fluctuations. 

Since the average rate of profit is formed by the average 
of the various rates of profit for each 100 of the invested capi- 
tal during a definite period of time, say one 3'ear, it follows 
that the difference brought about by the various j^eriods of 
turn-overs of different capitals is also effaced by this means. 
But these differences play a leading role in the different 
rates of profit of the various spheres of production whose 
average forms the average rate of profit. 

In the preceding illustration we assumed each capital in 
every sphere of production helping to make up the average 
rate of profit to be equal to 100, and we did so in order to 
show the differences in the rates of profit by percentages and 
incidentally the difference in the values of commodities pro- 
duced by equal amounts of capital. But it is understood that 



IV. ^ 



4 



Fonmition of Average Rate of Profit 191 

the actual masses of surplus-value produced in each sphere 
of production depend on the magnitude of the invested cap- 
itals, since the composition of each capital is determined bj 
each sphere of j)roduction. But the particular rate of profit 
of any individual sphere of production is not affected by the 
circumstance that a capital of 100, or m times 100, or xm 
times 100 may be invested. The rate of profit remains 10%, 
whether the total profit is as 10 to 100, or 1,000 to 10,000. 

However, since the rates of profit differ in the various 
spheres of production, seeing that considerably different 
masses of surplus-value, or profit, are produced in them ac- 
cording to the proportion of the variable to the total capital, 
it is evident that the average profit per 100 of the social cap- 
ital, and consequently the average, or general, rate of profit, 
will differ considerably according to the respective magni- 
tudes of the capitals invested in the various spheres. Take, 
for instance, four capitals A^ B^ C, D. Let the rate of sur- 
plus-value be 100% for all of them. Let the variable capi- 
tal for each 100 of total capital be 25 in A, 40 in B, 15 in C, 
and 10 in D. In that case every 100 of the total capital 
would make a surplus-value, or profit, of 25 in A, 40 in B, 
15 in C, and 10 in D. This would make a total of 90, and 
if these four capitals are of the same magnitude, the average 
rate of profit would he^-^-y or 22.5%. 

iSTow take it that the amounts of the total capitals are as 
follows: A equals 200, B, 300, C, 1,000, D, 4,000. The 
profits produced in that case would be 50, 120, 150, and 400. 
Lumping these four capitals together into one total capital 
of 5,500, its profit would be 720, and its average rate of 
profit 13^%. 

The masses of the total value produced differ according to 
the magnitudes of the total capitals invested in A, B, C, D, 
respectively. The question of the formation of an average 
rate of profit is therefore not merely a matter of drawing 
simply the average of the different rates of profit in the va- 
rious spheres of production, but quite as much one of the rela- 
tive weight which these different rates of profit carry in the 
formation of the average. This depends on the relative mag- 



192 Capitalist Production. 

nitiide of the capital invested in each particular sphere, or on 
the aliquot part which the capital invested in each particular 
sphere fonus in the aggregate social capital. There will nat- 
urally be a very great difference according to whether a large 
or a small part of the total capital yields more or less of a 
rate of profit. And this, again, depends on the fact whether 
much or little capital is invested in those spheres in which the 
variable capital is relatively small or large compared to the 
total capital. It is the same Avith the average interest which 
a usurer draws who lends different amounts of capital at 
different rates of interest; for instance at 4, 5, 6, 7%, etc. 
The average rate of his interest will depend entirely on the 
relative magnitudes of the various capitals put out by him at 
different rates of interest. 

We see, then, that the average rate of profit is determined 
by two factors: 

1) By the organic composition of the capitals in the differ- 
ent spheres of production, and consequently by the different 
rates of profit of the individual spheres. 

2) By the allotment of the social total capital to these 
different spheres, in other words, by the relative magnitude 
of the capitals invested in each particular sphere and the 
special rate of profit .attendant to it ; or, to express it still 
differently, by the relative share of the total social capital ab- 
sorbed by each sphere of production. 

In volumes I and II we were dealing only with the values 
of the commodities. Now w^e have dissected this value on 
the one hand into a cost-price, and on the other we have de- 
veloped out of it another form, that of the price of production 
of commodities. 

Take it that the composition of the average social capital 
is 80 c -f- 20 v, and that the annual rate of surplus-value, s', 
is 100%. In that case the average annual profit for a capital 
of 100 would be 20, and the average annual rate of profit 
20%. Whatever may be the cost-price k of the commodities 
annually produced by a capital of 100, their price of produc- 
tion will be k -f 20. In those spheres of production, in 
which the composition of capital would be (80 — x) c + 



1 



Formation of Average Rote of Profit. 193 

(20 + x) V, the actually produced surplus-value, or the an- 
nual profit produced in this sphere, would be 20 + x, that is 
to say greater than 20, and the value of the produced 
commodities k -|- 20 -)- x, that is to say greater than 
k -f- 20, greater than their price of production. On the 
other hand, in those spheres, in which the composition of 
the cajDital would be (80 -f" x) c -|- (20 — x) v, the anrmally 
produced surplus-value, or profit, would be 20 — x, or smaller 
than 20, and consequently the value of the commodities k + 
20 — X, smaller than the price of production, which is k -|-20. 
Aside from eventual differences in the periods of turn-over, 
the price of production of the commodities would be equal 
with their value only in those spheres, in which the composi- 
tion would happen to be 80 c + 20 v. 

The specific development of the social productivity of labor 
varies more or less in each particular sphere of production in 
proportion as the quantity of means of production set in mo- 
tion in a given working day by a given number of laborers is 
large, and consequently the quantity of labor required for a 
definite quantity of means of production small. Hence we 
call capitals of higher composition such capitals as contain a 
larger percentage of constant and a smaller percentage of vari- 
able capital than the average social capital ; and vice versa, 
capitals of lower composition those capitals which give rela- 
tively more room to the variable, and relatively less to the con- 
stant capital, than the average social capital. Finally, we 
call capitals of average composition those capitals which have 
the same composition as the average social capital. If the 
average social capital is composed of 80 c -(- 20 v, then a cap- 
ital of 90 c 4" 10 V stands above, and a capital of 70 c -f- 30 v 
below the social average. Generally speaking, if the compo- 
sition of the average social capital is mc -\- nv, m and n be- 
ing constant magnitudes and m -[- n being equal to 100, the 
formula (ra -f~ x) c -|- (n — x) v represents the higher com- 
position, and (m — x) c -j- (n -(- x) v the lower composition, 
of some individual capital or group of capitals. The follow- 
ing tabulation shows the way in which these capitals per. 
form their functions after an average rate of profit has been 



194 Capitalist Production. 

established, assuming one tnrn-over per year. In this tabula- 
tion, I shows the average composition, in which the average 
rate of profit is 20%. 

I). 80 c + 20 V + 20 s. Rate of profit 20%. Price of 
product 120. Value of product 120. 

II). 90 c + 10 V -I- 10 s. Eate of profit 20%o. Price of 
product 120. Value of product 110. 

III). 70 c + 30 V + 30 s. Pate of profit 20%.. Price of 
product 120. Value of product 130. 

The value of the oommodities produced by capital 11 
would, therefore, be smaller than their i^rice of production, 
while the price of production of the commodities of III 
would be smaller than their value. Value and price of pro- 
duction would be equal only in the case of capital I and others 
like it in the various lines of production. By the way, in 
applying these terms to any particular cases it must be borne 
in mind whether a deviation of the proportion between c and v 
is not due simply to a change in the value of the elements of 
constant capital, instead of a difference in the technical com- 
position. 

The foregoing statements are indeed a modification of our 
original assumption concerning the determination of the cost- 
price of commodities. We had originally assumed that tlr- 
cost-price of a commodity is equal to the value of the commod- 
ities consumed in its production. Now, the price of pro- 
duction of a certain commodity is its cost-price for the buyer, 
and this price may pass into other commodities and become an 
element of their prices. | Since the price of production may 
vary from the value of a commodity, it follows that the cost- 
price of a commodity containing this price of production may 
also stand above or below that portion of its total value which 
is formed by the value of the means of production consumed 
by it. It is necessary to remember this modified significance 
of the cost-price, and to bear in mind that there is always the 
possibility of an error, if we assume that the cost-price of 
the commodities of any particular sphere is equal to the value 
of the means of production consumed by it. Our present 
analysis does not necessitate a closer examination of this 



Formation of Average Rate of Profit. 195 

point. It remains true, nevertheless, that the cost-price of a 
commodity is always smaller than its value. For no matter 
how much the cost-price of a commodity may differ from the 
value of the means of production consumed by it, a previous 
mistake in this respect is immaterial for the capitalist. The 
cost-price of a certain commodity has been previously deter- 
mined, it is a premise independent of the production of our 
capitalist, while the result of his production is a commodity 
containing surplus-value, which is an addition to its cost- 
price. For all other purposes, the statement that the cost- 
price is smaller than the value of a commodity is now prac- 
tically changed into the statement that the cost-price is smaller 
than the price of production. So far as the total social capi- 
tal is concerned, in the case of which the price of production 
is equal to the value, this statement is still identical with the 
former, namely that the cost-price is smaller than the value 
of a commodity. And while this state of things is modified 
in the individual spheres of production, still the fundamental 
fact always remains that, from the point of view of the total 
social capital, the cost-price of the commodities produced by 
it is smaller than their value, or smaller than their price of 
production, which in the case of the total mass of social com- 
modities is identical with their value. The cost-price of a 
commodity refers only to the quantity of paid labor contained 
in it, while its value refers to all the paid and unpaid labor 
contained in it. The price of production refers to the sum 
of the paid labor plus a certain quantity of unpaid labor de- 
teiTnined by conditions which are independent of the individ- 
ual sphere in which this particular commodity was produced. 

The formula that the price of production of a commodity 
is equal to k + P? equal to its cost-price plus profit, is now 
more precisely modified by the explanation that p equals kp' 
(p' meaning the average rate of profit), so that the price of 
production is equal to k + kp'. If k is 300 and p", 15%, 
then the price of production, being k -f kp', is 300 + 300 
X tVV, 01' 345. 

The price of production of the commodities in any particu- 
lar sphere may alter its magnitude in the following cases: 



196 Capitalist Production. 

1) If the average rate of profit is changed through con- 
ditions which are independent of this particular sphere, as- 
suming the value of commodities to remain the same (so that 
the same quantities of dead and living labor are consumed 
in their production as before). 

2) If there is a change of value, either in this particular 
sphere in consequence of technical changes, or in consequence 
of a change in the value of the commodities which form ele- 
ments of the constant capital of this sphere, while the average 
rate of profit remains unchanged. 

3) If the two aforementioned eventualities combine their 
effects. 

In spite of the great changes occurring continually, as we 
shall see, in the rates of profit of the individual spheres of 
production, there is on the other hand no rapid change in the 
average rate of profit, unless it is brought about exceptionally 
by extraordinary economic events. A change in the average 
rate of profit is as a rule the belated work of a long series of 
fluctuations extending over very long periods of time, fluctua- 
tions which require much time before they will consolidate 
and compensate one another so as to bring about a change in 
the average rate of profit. In all short periods of time 
(quite aside from fluctuations of market prices), a change in 
the prices of production is, therefore, always traceable to ac- 
tual changes in the value of commodities, that is to say, to 
changes in the total amount of labor-time required for their 
production. As a matter of course, mere changes in the 
money-expression of the same values are not at all considered 
liere.^^ 

On the other hand it is evident that, from the point of 
view of the total social capital, the value of the commodities 
produced by it (or, expressed in money, their price) is equal 
to the value of the constant capital plus the value of the vari- 
able capital plus the surplus-value. Assuming the degree of 
labor-exploitation to be constant, the rate of profit cannot 
change so long as the mass of surplus-value remains the same, 
unless either the value of the constant capital changes, or the 

=»Corbett, page 174. 



Formation of Average Rate of Profit. 197 

value of the variable capital, or the value of both, so that C 
is changed and thereby -^ , the general rate of profit. In 
every event, then, a change in the average rate of profit is 
conditioned on a change in the value of the commodities 
which form the elements of the value of the constant, or vari- 
able capital, or of both. 

Or, the average rate of profit may change, if the degree of 
labor-exploitation changes, while the value of the commodities 
remains the same. 

Or, if the degree of labor-exploitation remains the same, 
the average rate of profit may change through a relative 
change in the labor employed in comparison to the constant 
capital, as a result of technical changes in the labor-process. 
But such technical changes must always find expression in a 
change of value of the commodities, and be accompanied by it, 
since their production will then require either more or less 
labor than before. 

We saw in part I that the mass of profit and surplus-value 
were identical. But the rate of profit was from the first dis- 
tinguished from the rate of surplus-value, and this appeared 
to be due, at first sight, to a mere difference of calculation. 
But at the same time this way of looking at the question 
served from the outset to obscure and mystify the actual ori- 
gin of surplus-value, since the rate of profit could rise or fall, 
while the rate of surplus-value remained the same, and vice 
versa, and since the capitalist had a practical interest only in 
the rate of profit. But there was an actual difference of mag- 
nitude only between the rates of surplus-value and of profit, 
not between the masses of surplus-value and of profit. Since 
the surplus-value was calculated on the total capital in fignir- 
ing up the rate of profit, and this total capital was regarded 
as the standard of measurement, the surplus-value itself 
seemed to have its origin in the total capital and to proceed 
from all its parts uniformly, so that the organic difference 
between constant and variable capital was obliterated. In 
its disguise of profit, the surplus-value had actually con- 
cealed its origin, lost its character, and become unrecogniza- 
ble. However, hitherto the distinction between profit and 



198 Capitalist Production. 

surplus-value referred only to a change of quality, or form 
and there was no real difference of magnitude between the 
masses of surplus-value and profit, but only between the rates 
of surplus-value and profit, in this first stage of their meta- 
morphosis. 

But this is changed, as soon as a general rate of profit, 
and, by lueans of it, an average mass of profit corresponding 
to the magnitude of the capitals invested in the various 
spheres of production, have been established. 

After that it is but accidentally that the surplus-value ac- 
tually produced in any particular sphere of production, and 
thus the profit, is identical with the profit contained in the 
selling price of the commodities. It then becomes the rule, 
that not only the rates of surplus-value and profit are the ex- 
pression of different magnitudes, but also the masses of sur- 
plus-value and of profit. Assuming a certain degree of ex- 
ploitation to exist, the mass of the surplus-value produced in 
any particular sphere of production is now more important 
for the average profit of the total social capital, and thus for 
the capitalist class in general, than for the individual capi- 
talist in any individual line of production. It has any im- 
portance for the individual capitalist only to the extent ^^ 
that the quantity of surplus-value produced in his line plays 
a determining role in regulating the average profit. But this 
is a process which takes place behind his back, which he does 
not see, nor understand, and which indeed does not interest 
him at all. The actual difference of magnitude between 
profit and surplus-value — not merely between the rate of 
profit and of surplus-value — in the various spheres of pro- 
duction now conceals completely the true nature and origin 
of profit, not only for the capitalist, who has a special inter- 
est in deceiving himself on this score, but also for the laborer. 
By the transformation of values into prices of production, the 
basis of the determination of value is itself removed from di- 
rect observation. Finally, seeing that the mere transforma- 
tion of surplus-value into profit separates that portion of the 

=*0f course, we leave aside the question of the probability of securing an extra 
profit by cutting wages, monopoly prices, etc., at least for the moment. 



I 



Formation of Average Rate of Profit. 199 

value of commodities which forms the profit from that por- 
tion which forms the cost-price of commodities, it is natural 
that the capitalist should lose the meaning of the term value at 
this juncture. For he is not confronted with the total labor 
put into the production of the commodities, but only with 
that portion of the total labor which he has paid in the shape 
of means of production, whether they be alive or dead, so that 
his profit appears to him as something outside of the imma- 
nent value of the commodities. And now this conception is 
fully endorsed, fortified, and ossified by the fact that, from 
the point of view of his jjarticular sphere of production, the 
profit is not determined by the limits drawn for the formation 
of value within his own circle, but by outside influences. 

The fact that the actual state of things is here revealed for 
the first time ; that political economy up to the present time, 
as we shall see in the following and in volume IV, made 
either forced abstractions of the distinctions between surplus- 
value and profit, and their rates, in order to be able to retain 
the determination of value as a basis, or gave up the deter- 
mination of value and with it all safeguards of scientific proce- 
dure, in order to cling to the obvious phenomena of these differ- 
ences — this confusion of the theoretical economists demon- 
strates most strikingly the utter incapacity of the capitalist, 
when blinded by competition, to penetrate through the out- 
ward disguise into the internal essence and the inner form of 
the capitalist process of production. 

In fact, all the laws concerning the rise and fall of the 
rate of profit, as analysed in part I, have the following double 
meaning: 

1) On the one hand, they are the laws of the average rate 
of profit. In view of the many different causes which bring 
about a rise or a fall in the rate of profit, one would think 
that the average rate of profit would change every day. But 
a certain movement in one sphere will counterbalance that of 
another, their effects cross and paralyze one another. We 
shall examine later on toward which side these fluctuations 
gravitate ultimately. But they are slow. The suddenness, 
multiplicity, and different duration of the fluctuations in the 



200 Capitalist Production. 

individual spheres of production tend to compensate them 
mutually in the order of their succession in time, so that a 
fall in prices follows after a rise, and vice versa, limiting 
these fluctuations to local, individual, spheres. As a result, 
the various local fluctuations ultimately neutralise one an- 
other. Changes take place within each individual sphere of 
production, deviations from the average rate of profit, which 
on the one hand, balance one another after a certain time and 
thus do not react upon the average rate of profit, and whicli, 
on the other hand, do not react upon it, because they are bal- 
anced by other simultaneous fluctuations in other local 
spheres. Since the average rate of profit is determined, not 
only by the average profits of each sphere, but also by the 
allotment of the total social capital to the different individual 
spheres, and since this allotment is continually changing, this 
is another continuous cause of changes in the average rate of 
profit. But it is a cause of changes which largely paralyzes 
itself, owing to its interrupted and many sided nature. 

2) Within each sphere, there is a certain playroom for a 
space of time in which the local rate of profit may fluctuate, 
before this fluctuation of rise and fall consolidates suflficiently 
to gain time for exerting an influence on the average rate of 
profit and assuming more than a local importance. Within 
these limits of space and time, the laws of the rate of profit, jm 
as developed in Part I of this volume, likewise remain ap- *" ' 
plicable. 

The theoretical conception, referring to the first transfor- 
mation of surplus-value into profit, according to wdiich every 
part of the capital yields uniformly the same profit,^^ ex- 
presses a practical fact. Whatever may be the composition 
of the industrial capital, whether it sets in motion one quar- 
ter of dead labor and three quarters of living labor, or three 
quarters of dead labor and one quarter of living labor, 
whether it absorbs three times as much surplus-labor, or pro- 
duces three times as much surplus-value, in one case than in 
another, it yields the same profit in either case, always as- 
suming the degree of labor-exploitation to be the same, and 

» Malthus, 



Formation of Average Rate of Profit 201 

leaving aside individual differences, which disappear for the 
reason that we are dealing in either case with the average 
composition of the entire sphere of production. The indi- 
vidual capitalist, whose outlook is limited, or even all the 
capitalists in each individual sphere of production, justly 
believe that their profits are not derived solely from the 
labor employed in their own individual sphere. This is quite 
true so far as their average profit is concerned. To what ex- 
tent this profit is due to the universal exploitation of labor 
by means of the total social capital, that is to say, by all his 
capitalist colleagues, this connection of things is a complete 
mystery for the individual capitalist. And it is all the more 
so, since no bourgeois economist has so far cleared it up for 
him, A saving of labor — not only of labor necessary for the 
production of a certain product, but also of the number of la- 
borers employed — and tlie employment of more dead labor 
(constant capital), appear as very correct operations from an 
economic point of view, and do not seem to exert the least in- 
fluence on the average rate of profit and the average profit. 
How, then, could living labor be the exclusive source of profit, 
seeing that a reduction in the quantity of labor required for 
production does not only seem to exert no injurious influence 
on profit, but even seems, under certain circumstances, to be 
the first cause for an increase of profits, at least for the in- 
dividual capitalist ? 

If there is a rise or fall, in any particular sphere of pro- 
duction, in that portion of the cost-price which represents the 
value of the constant capital, it is a portion coming out of the 
circulation and passes from the outset into the process of pro- 
duction of the commodities in its enlarged or reduced state. 
If, on the other hand, the same number of laborers produces 
more or less in the same time, so that the quantity of labor 
required for the production of a definite quantity of com- 
modities varies Avhile the number of laborers remains the 
same, it may be that that portion of the cost-price, which rep- 
resents the value of the variable capital, may remain the same 
and contribute the same amount to the cost-price of the total 
product. But every individual commodity, whose sum makes 



202 Capitalist Production. 

up the total product, shares in more or less labor (paid and 
unpaid), and shares therefore in the greater or smaller outlay 
for this labor, a larger or smaller portion of the wages. The 
total wages paid bv the capitalist remain the same, but the 
calculation for each individiial commodity is different. To 
that extent there would be a change in the cost-price of the 
commodities. But no matter whether the cost-price of the 
individual commodities rises or falls, either as a result of such 
changes of value in this same commodity, or of changes of 
value in its elements (or, perhaps, the cost-price of the total 
amount of commodities produced by a capital of a given mag- 
nitude), if the average profit is, say, 10%, it remains 10%. 
Still, 10%, from the point of view of the individual com- 
modity, may represent very different amounts, according to 
the change of magnitude in the cost-price of the individual 
commodities called forth by such changes of value as we 
have assumed.^^ 

So far as the variable capital is concerned — and this is 
the more important, because it is the source of surplus-value, 
and because anything which conceals its relation to the accu- 
mulation of wealth by the capitalist serves to mystify the en- 
tire system — the matter assumes a coarser form. It appears 
to the capitalist in this light : A variable capital of 100 p.st. 
employs, perhaps, 100 laborers per w^eek. If these 100 la- 
borers produce 200 pieces of commodities or 200 C, per week 
in a given working time, then 1 C — leaving aside the ques- 
tion of that portion of its cost-price which is added by the 
constant capital, costs 10 shillings, for 100 p.st. pay for 200 c, 
and therefore 1 C costs \^^ p.st. Xow take it that a change 
takes place in the productive power of labor. Perhaps it is 
doubled, so that the same number of laborers now produces 
twice 200 C in the same time in which they used to produce 
once 200 C. In that case 1 C costs 5 shillings (always 
speaking only of that portion of the cost-price which consists 
of wages), for since 100 p.st. now pay for 400 C, 1 C costs 
\^^ p.st. On the other hand, if the productive power were 
to decrease by one-half, then the same labor would produce 

» Corbett. 



Market Prices and Market Values. . 203 

only ^^-C. And since 100 p.st. pay for ^ C, 1 C would 
cost YW^ p.st., or 1 p.st. The changes in the labor-time re- 
quired for the production of the commodities, and thus the 
changes in their values, thus appear with reference to the 
cost-price and the price of production as different allotments 
of the same wages to more or fewer commodities, according 
to the greater or smaller quantity of commodities produced 
in the same working time for the same wages. The capi- 
talist, and consequently his political economist, see that the 
aliquot part of the paid labor falling to the share of each 
individual commodity changes with the productivity of labor, 
and that the value of these commodities also changes accord- 
ingly. But they do not see that the same is true of the un- 
paid labor contained in every individual connnodity, and they 
see it so much less since the average profit is but accidentally 
determined by the unpaid labor absorbed in the sphere of 
the individual capitalist. Only in this vagiie and meaning- 
less form are we still reminded of the fact that the value of 
the commodities is determined bv the labor contained in them. 



CHAPTEE X. 

COMPENSATION OF THE AVERAGE RATE OF PROFIT BY COM- 
PETITION. MARKET PRICES AND MARKET VALUES. SUR- 
PLUS-PROFIT. 

One portion of the spheres of production has an average com- 
position of their capitals, that is to say, their capitals have 
exactly or approximately the composition of the average so- 
cial capital. 

In these spheres of production, the price of production of 
the produced commodities coincides exactly or approximately 
with their values as expressed in money. If there is no other 
way of reaching a mathematical limit, this would be the one. 
Competition distributes the social capital in such a way be- 
tween the various spheres of production that the prices of 
production of each sphere are formed aft^r the model of the 



204 Capitalist Production. 

prices of production in these spheres of average composition, 
which is k -|- kjD', cost-price plus the average rate of profit 
multij)lied by the cost-price, l^ow, this average rate of profit 
is nothing else but the percentage of profit in that sphere of 
average composition, in which the profit is identical with the 
surplus-value. Hence the rate of profit is the same in all 
spheres of production, for it is apportioned according to that 
one of the average spheres of production in which the average 
composition of capitals prevails. Consequently the sum of the 
profits of all spheres of production must be equal to the 
sum of surplus-values, and the sum of the prices of produc- 
tion of the total social product equal to the sum of its values. 
But it is evident that the balance between the spheres of pro- 
duction of different composition must tend to equalise them 
with the spheres of average composition, no matter Avhether 
this average composition is exact or only approximate. 
Again, there are tendencies toward equalisation between the 
more or less similar sjDheres, and these tendencies seek to 
bring about the ideal average, which does not really exist, so 
that there is a trend toward crystallisation around the ideal. 
In this way the tendency necessarily prevails to make of the 
prices of production merely changed forms of value, or to 
make of profits but mere portions of surplus-value, which are 
assigned, however, not in proportion to the surplus-value pro- 
duced in each special sphere of production, but in proportion 
to the mass of capital employed in each sphere of production, 
so that equal masses of capital, whatever may be their com- 
position, receive equal aliquot shares of the total surplus- 
value produced by the total social capital. 

In the case of capitals of average, or approximately aver- 
age, composition, the price of production coincides exactly, or 
approximately with the value, and the profit with the surplus- 
value produced by them. All other capitals, of whatever com- 
position, tend toward this average under the pressure of com- 
petition. • But since the capitals of average composition are of 
the same, or approximately the same, structure as the average 
social capital, all capitals have the tendency, regardless of the 
surplus-value produced by them, to realise in the prices of 



I 



Market Prices and Market Values. 205 

their coiimiodities the average profit, instead of their own sur- 
plus-value, in other words, to realise the prices of production. 

On the other hand it may be said that whenever an average 
profit, and a general rate of profit, are brought about, no mat- 
ter by what means, such an average profit cannot be anj^thing 
else but the profit on the average social capital, the sum of 
these average profits being equal to the sum of surplus-values 
produced by the average social capitals, and that the prices 
brought about by adding this average profit to the cost-prices 
cannot be anything else but the values transformed into prices 
of j^roduction. It would not alter matters, if certain capitals 
in certain spheres of production would not submit to the 
process of equalisation for some reason or other. In that 
case the average profit would be computed on that portion of 
the social capital which takes part in the process of equalisa- 
tion. It is evident that the average profit cannot bo anything 
else but the total mass of surplus-values allotted to the various 
masses of capital in the different spheres of production in 
proportion to their magnitudes. The average profit is the 
total amount of realised unpaid labor, and this total mass of 
unpaid labor, the same as the paid, dead or living, labor, is 
materialised in the total mass of commodities and money fall- 
ing to the share of the capitalists. 

The real difficulty lies in the question: How is this equal- 
isation of profits into an average rate of profit brought about, 
seeing that it is evidently a result, not a point of departure ? 

It is obvious that an estimate of the values of the com- 
modities, for instance in money, can not be made until they 
have been exchanged. If we assume such an estimate, we 
must regard it as the outcome of an actual exchange of com- 
modity-value for commodity-value. But how should such an 
exchange of commodities at their real values have come about ? 

Let us assume that all commodities in the different lines 
of production are sold at their real values. What would be 
the outcome ? According to our foregoing analyses, the rates 
of profit in the various spheres of production would differ 
considerably. It is quite obvious that we are dealing with 
two different things, whether on the one hand commodities 



2o6 Capitalist Production. 

are sold at their values (that is to say, sold in proportion to 
the value contained in them, or exchanged with one another at 
the price of their values), or -whether, on the other hand, they 
are sold at such prices that their sale yields equal amounts cf 
profits on equal masses of the respective capitals advanced 
for their production. 

Tf capitals employing unequal amounts of living labor 
are to produce unequal amounts of surplus-value, it must be 
assumed, at least to a certain degree, that the intensity of ex- 
ploitation, or the rate of surplus-value, are the same, or that 
any existing differences in them are balanced by real or imag- 
inary (conventional) elements of compensation. This would 
presuppose a competition among the laborers and an equilibra- 
tion by means of their continual emigration from one sphere 
of production to another. Such a general rate of surplus- 
value — as a tendency, like all other economic laws — has 
been assumed by us for the sake of theoretical simplification. 
But in reality it is an actual premise of the capitalist mode 
of production, although it is more or less obstructed by prac- 
tical frictions causing more or less considerable differences 
locally, such as the settlement laws for English farm laborers. 
But in theory it is the custom to assume that the laws of cap- 
italist production evolve in their pure form. In reality, how- 
ever, there is always but an approximation. Still, this ap- 
proximation is so much greater to the extent that the capitalist 
mode of production is normally developed, and to the extent 
that its adulteration and amalgamation with remains of former 
economic conditions is outgrown. 

The whole difficulty arises from the fact that commodities 
are not exchanged simply as commodities, but as products of 
capitals, which claim equal shares of the total amount of sur- 
plus-value, if they are of equal magnitude, or shares propor- 
tional to their different magnitudes. And this claim is to be 
satisfied by the total price realised by a certain capital on the 
commodities produced by it within a certain space of time. 
This total price, again, is but the sum of the prices of the 
individual commodities produced by this capital. 

The essential point will become most visible, when we look 



Market Prices a ml Market J\ilites\ 207 

upon the matter in this way : Let us assume that the laborers 
themseh^es are in possession of their respective means of pro- 
duction and exchange their commodities with one another. 
In that case these commodities would not be products of capi- 
tal. The value of the various instruments of labor and raw 
materials would differ according to the technical nature of the 
labors performed in the different lines of production. Further- 
more, aside from the unequal value of the means of productirn 
employed by them, they would require different quantities of 
means of production for given quantities of labor, according to 
whether a certain commodity can be finished in one hour, an- 
other in one day, and so forth. Let us assume, also, that these 
laborers work on an average equal lengths of time, allowing for 
compensations due to different intensities of labor. In that 
case, two laborers, both working one day, would have in the 
connnodities produced by them, first, an equivalent for their 
outlay, the cost-prices of the means of production consumed 
by their labor. These would differ according to the technical 
nature of their lines of production. In the second place, both 
of them would have created equal amounts of new value, 
namely the working day added by them to the means of 
production. This would comprise their wages plus the sur- 
plus-value, the last representing surplus-labor exceeding their 
necessary wants, the product of which would belong to them. 
If we were to use capitalist terms, we should say that both of 
them receive the same wages plus the same profit, or the same 
value exjDressed, say, by the product of a working day of 
ten hours. But in the first place, the values of their com- 
modities would differ. The commodities of I, for instance, 
might contain more value for each portion of the consumed 
means of production than the commodities of 11. And, to 
introduce all possible differences, we may assume right now 
that the commodities of I absorb more living labor, and con- 
sequently require more labor-time for their production, than 
the commodities of 11. Then the value of the commodities 
of I and II, we repeat, differs considerably. So do the sums 
of the values of their commodities, which represent the prod- 
uct of the labor performed by laborers I and II in a certain 



2o8 Capitalist Production. 

time. The rates of profit would also differ considerably for 
I and II, assinning- that we call rate of profit, in this case, the 
proportion of the surplus-value to the total value of the in- 
vested means of production. The means of subsistence daily 
consumed by I and II during production, which take the i)lace 
of wages, will form that part of the invested capital which 
Ave would call variable capital under different circumstances. 
But the sui'plus-values would be the same for I and II, or, to 
express it more accurately, since both I and II receive the 
value of the product of one day's labor, both of them receive 
equal values after the value of the invested " constant " capi- 
tal has been deducted, and we may regard one portion of this 
remaining value as an equivalent for the means of subsistence 
consumed during production, and the other as surplus-value. 
If laborer I has higher expenses, they are made good by a 
greater portion of the value of his commodities replacing this 
" constant " part, and he has to reconvert a larger portion of 
the total value of his product into the material elements of 
this constant part, while laborer II, if he receives less for 
this purpose, has to reconvert so much less. Under these cir- 
cumstances a difference in the rates of profit would be of no 
concern, just as it is immaterial for the wage-laborer to-day 
what rate of profit may express the amount of surplus-value 
filched from him, and just as in international commerce the 
difference in the various national rates of profit is immaterial 
for the exchange of their commodities. 

The exchange of commodities at their values, or approxi- 
mately at their values, requires, therefore, a much lower stage 
than their exchange at their prices of production, which re- 
quires a relatively high development of capitalist produc- 
tion. 

Whatever may be the way in which the prices of the va- 
rious commodities are first fixed or mutually regulated, the 
law of value always dominates their movements. If the la- 
bor time required for the production of these commodities 
is reduced, prices fall ; if it is increased, prices rise, other cir- 
cumstances remaining the same. 

Aside from the fact that prices and their movements are 



Market Prices and Market Values. 209 

dominated by the law of value^ it is quite appropriate, under 
these circumstances, to regard the value of commodities not 
only theoretically, but also historically, as existing prior to 
the prices of production. This applies to conditions, in which 
the laborer owns his means of production, and this is the con- 
dition of the land-owning farmer and of the craftsman in the 
old world as well as the new. This agrees also with the view 
formerly expressed by me that the development of product 
into commodities arises through the exchange between differ 
ent communes, not through that between the members of the 
same commune. ^^ It applies not only to this primitive con- 
dition, but also to subsequent conditions based on slavery or 
serfdom, and to the guild organisation of handicrafts, so long 
as the means of production installed in one line of production 
cannot be transferred to another line except under difficulties, 
so that the various lines of production maintain, to a certain 
degree, the same mutual relations as foreign countries or 
communistic groups. 

In order that the prices at which commodities are ex- 
changed with one anotlier may correspond approximately to 
their values, no other conditions are required but the follow- 
ing: 1) The exchange of the various commodities must no 
longer be accidental or occasional, 2) So far as the direct ex- 
change of commodities is concerned, these commodities must 
be produced on both sides in sufficient quantities to meet mu- 
tual requirements, a thing easily learned by experience in 
trading, and therefore a natural outgrowth of continued trad- 
ing, 3) So far as selling is concerned, there must be no acci- 
dental or artificial monopoly which may enable either of the 
contracting sides to sell commodities above their value or com- 
pel others to sell below value. An accidental monopoly is one 
which a buyer or seller acquires by an accidental proportion 
of supply to demand. 

The assumption that the commodities of the various spheres 
of production are sold at their value implies, of course, only 

*T In 1 865, when Marx wrote these lines, they expressed as yet merely his 
" view." Today, since we have the extended researches into the nature of primi- 
tive societies made from Maurer to Morgan, these things are accepted facts which 
hardly anyone cares to deny. — F. E. 

N 



2IO Capitalist Production. 

that their value is the center of gravity around which prices 
fluctuate, and around which their rise and fall tends to an 
equilihriuni. We shall also have to note a marlict value, 
which must he distinguished from the individual value of the 
commodities produced by the various producers. Of this 
more anon. The individual value of some of these commod- 
ities will be below the market-value, that is to say, they re- 
quire less labor-time for their production than is expressed in 
the market-value, while that of others will be above the mar- 
ket-value. We shall have to regard the market-value on one 
side as tlie average value of the commodities produced in a 
certain sphere, and on the other side as the individual value 
of commodities produced under the average conditions of their 
respective sphere of production and constituting the bulk of 
the products of that sphere. It is only extraordinary com- 
binations of circumstances under which commodities produced 
under the least or most favorable conditions regulate the 
market-value, which forms the center of fluctuation for the 
market-pi,[cto which are the same, however, for the same 
kind of commodities. If the ordinary demand is satisfied by 
the supply of commodities of average value, that is to say, 
of a value midway between the two extremes, then those com- 
modities, w^hose individual value stands below the market- 
value, realise an extra surplus-value, or surplus-profit, while 
those, whose individual value stands above the market-vahie 
cannot realise a portion of the surplus-value contained in 
them. 

It does not do any good to say that the sale of the com- 
modities produced under the most unfavorable conditions 
proves that they are required for keeping up the supply. If 
the price in the assumed case were higher than the average 
market-value, the demand would be greater. At a certain 
price, any kind of commodities may occupy so much room on 
the market. This room does not remain the same in the case 
of a change of prices, unless a higher price is accompanied by 
a smaller quantity of commodities, and a lower price by a 
larger quantity of commodities. But if the demand is so 
strong that it does not let up when the price is regulated by 



Market Prices and Market Values. 211 

the value of the commodities produced under the most un- 
fav^orable conditions^ then these commodities determine the 
market-value. This is not possible unless the demand exceeds 
the ordinary, or the supply falls below it. Finally, if the 
mass of the produced commodities exceeds the quantity which 
is ordinarily disposed of at average market-values, then the 
commodities produced under the most favorable conditions 
regulate the market-value. These commodities may be sold 
exactly or approximately at their individual values, and in 
that case it may happen that the commodities produced under 
the least favorable conditions do not realise even their cost- 
prices, while those produced under average conditions realise 
only a portion of the surplus-vak.^e contained in them. The 
statements referring to market-value apply also to the price of 
production, if it takes the place of market-value. The price 
of production is regulated in each sphere, and this regulation 
depends on special circumstances. And this price of i)ro(luc- 
tion is in its turn the center of gravity around which the 
daily market-prices fluctuate and tend to balance' "or o another 
within definite periods. (See Ricardo on the determination 
of the price of j^roduction by those who produce under the 
least favorable conditions.) 

Xo matter what may be the way in which prices are regu- 
lated, the result always is the following: / 

1) The law of value dominates the movements of prices, 
since a reduction or increase of the labor-time required for 
production causes the prices of production to fall or to rise. 
It is in this sense that Eicardo (who doubtless realised that 
his prices of production differed from the value of connnodi- 
ties) says that " the inquiry to which he wishes to draw the 
reader's attention relates to the effect of the variations in the 
relative value of commodities, and not in their absolute value." 

2) The average profit which determines the prices of pro- 
duction must always be approximately equal to that quantity 
of surplus-value, which falls to the share of a certain indi- 
vidual capital in its capacity as an aliquot part of the total 
social capital. Take it that the average rate of profit, and 
therefore the average profit, are expressed by an amount of 



212 Capitalist Production. 

money of a higher value than the money-value of the actual 
average surplus-value. So far as tlie capitalists are concerned 
i/i that case, it is immaterial whether they charge one an- 
t'ther a profit of 10 or of 15%. The one of these percentages 
Iocs not cover any more actual commodity-value than the 
i)ther, since the overcharge in money is mutupl. But so far 
as-the laborer is concerned (the assumption being that he re- 
ceives the normal wages, so that the raising of the average 
profit does not imply an actual deduction from his wages, in 
other words, does not express something entirely different 
from the normal surplus-value of the capitalist), the rise in 
the price of commodities due to a raising of the average profit 
must be accompanied by a corresponding rise of the money- 
expression for the variable capital. As a matter of fact, such 
a general nominal raising of the rate of profit and the average 
profit above the limit provided by the proportion of the actual 
surplus-value to the total invested capital is not possible with- 
out carrying in its wake an increase of wages, and also an in- 
crease in the prices of the commodities which constitute the 
constant capital. The same is true of the opposite case, that 
of a reduction of the rate of profit in this way. l^ow, since 
the total value of the commodities regulates the total surplus- 
value, and this the level of the r.verage profit and the average 
rate of profit — always understanding this as a general law, 
as a principle regulating the fluctuations — it follows that 
the law of value regulates the prices of production. 

Competition first brings about, in a certain individual 
sphere, the establishment of an equal market-value and mar- 
ket-price by averaging the various individual values of the 
commodities. The competition of the capitals in !he different 
spheres then results in the price of production which equal- 
ises the rates of profit between the different spheres. This 
last process requires a higher development of capitalist pro- 
duction than the previous process. 

In order that commodities of the same sphere of produc- 
tion, the same kind, and approximately the same quality, may 
be sold at their value, the following two requirements must be 
fulfilled: 



Market Prices and Market Values. 213 

1) The different individual values must have been avei-- 
aged into one social value, the above-named market-value, and 
t\\W implies a competition between the producers of the 
same kind of commodities, and also the existence of a com- 
mon market, on which thej oifer their articles for sale. In 
order that the market-price of identical commodities, which 
however are produced under different individual circum- 
stances, may correspond to the market-value, may not 
differ from it by exceeding it or falling below it, it is 
necessary that the different sellers should exert sufficient pres- 
ure upon one another to bring that quantity of commodities 
on the market which social requirements demand, in other 
words, that quantity of commodities whose market-value so- 
ciety can pay. If the quantity of products exceeds this de- 
mand, then the commodities must be sold below their market- 
value ; vice versa, if the quantity of products is not large 
enough to meet this demand, or, what amounts to the same, 
if the pressure of competition among the sellers is not strong 
enough to bring this quantity of products to market, then the 
commodities are sold above their market-value. If the mar- 
ket-value is changed, then there will also be a change in the 
conditions under which the total quantity of commodities 
can be sold. If the market-value falls, then the average so- 
cial demand increases (always referring to the solvent de- 
mand) and can absorb a larger quantity of commodities within 
certain limits. If the market-value rises, then the solvent so- 
cial demand for commodities is reduced and smaller quanti- 
ties of them are absorbed. Hence if supply and demand reg- 
ulate the market-price, or rather the deviations of market- 
prices from market-values, it is true, on the other hand, that 
the market-value regulates the proportions of supply and de- 
mand, or the center around which supply and demand cause 
the market-prices to fluctuate. 

If we look closer at the matter, we find that the conditions 
determining the value of some individual commodity become 
effective, in this instance, as conditions determining the value 
of the total quantities of a certain kind. For, generally speak- 
ing, capitalist production is from the outset a mass-production. 



214 Capitalist Production. 

And even other, less developed, modes of production carrj 
small quantities of j)roducts, the result of the work of many 
small producers, to market as co-operative products, at least 
in the main lines of production, concentrating and accumulat- 
ing them for sale in the hands of relatively few merchants. 
Such commodities are regarded as co-oi3erative products of 
an entire line of production, or of a greater or smaller part 
of this line. 

We remark by the way that the " social demand," in other 
words, that which regulates the principle of demand, is es- 
sentially conditioned on tlie nuitual relations of the different 
economic classes and their relative economic positions, that is 
to say, first, on the proportion of the total surplus-value to 
the wages, and secondly, on the proportion of the various parts 
into which surplus-value is divided (profit, interest, ground- 
rent, taxes, etc.). And this shows once more that absolutely 
nothing can be explained by the relation of supply and de- 
mand, nnless the basis has first been ascertained, on which 
this relation rests. 

Although both commodity and money represent units of 
exchange-value and use-value, we have already seen in volume 
I, chapter I, 3, that in buying and selling both of these func- 
tions are polarised at the two extremes, the commodity (seller) 
representing the nse-value, and the money (buyer) the ex- 
change-value. It was one of the first conditions for the sale 
of a commodity that it should have a use-value and satisfy 
some social need. The other essential condition was that the 
quantity of labor contained in a certain commodity should 
represent socially necessary labor, so that its individual value 
(and what amounts to the same under the present assumption, 
its selling price) should coincide with its social value.^^ 

Xow let us apply this to the mass of commodities on the 
market, which represent the product of a whole sphere of 
production. The matter will be most easily explained by re- 
garding this whole mass of commodities, coming from one line 
of production, as one single commodity, and the sum of the 
prices of the many identical commodities as one price. In 

**Karl Marx, Critique of Political Economy, Berlin, 1859. 



Market Prices and Market Values. 215 

that case the statements made in regard to one individual com- 
modity apply literally to the mass of commodities sent to the 
market by one entire line of prodnction. The postulate that 
tlie individual value of a commodity should correspond to 
its social value has then the significance that the total quan- 
tity of commodities contains the quantity of social labor neces- 
sary for its production, and that the value of this mass is 
equal to its market-value. 

Now let us assume that the bulk of these commodities has 
been produced under approximately the same normal condi- 
tions of social labor, so that this social value is at the same 
time identical with the individual value of the indivdual com- 
modities constituting this mass. In that case, a relatively 
small portion of tliese commodities may have been produced 
below, and another above, these conditions, so that the indi- 
vidual value of the one portion is greater, and that of the 
other smaller, than the average value of the bulk of the com- 
modities, but in such proportions that these extremes balance 
one another. The average value of the commodities in these 
extremes is then equal to the average value of the great bulk 
of average commodities. Under such circumstances, the mar- 
ket-value is determined by the value of the commodities pro- 
duced under average conditions. ^^ The value of the entire 
mass of commodities is equal to the actual sum of the values 
of all individual commodities combined, no matter whether 
they were produced under average conditions, or under con- 
ditions above or below the average. In this case, the market- 
value, or the social value^ of the mass of commodities — the 
necessary labor time contained in them — is determined by 
the value of the average bulk. 

Let us assume, on the other hand, that the total mass of 
commodities brought to market remains the same, while the 
value of the commodities produced under the least favorable 
conditions is not balanced by the value of the commodities 
produced under the most favorable conditions, so that the 
mass of commodities produced under the least favorable con- 
ditions constitutes a relatively large quantity, compared to the 

29 Karl Marx, Critique of Political Economy^ Berlin, 1859, 



2i6 Capitalist Production. 

average mass as well as to the other extreme. In that case 
the mass produced under the least favorable conditions de- 
termines the market-value, or social value. 

Take it, finally, that the mass of commodities produced 
under the most favorable conditions is considerably in excess 
of the mass produced under the least favorable conditions, and 
is large even compared with the average mass. Then the 
mass produced under the most favorable conditions deteraiines 
the market-value. We leave aside the question of a trans- 
fer of the market, whenever the mass of commodities pro- 
duced under the most favorable conditions regulates the mar- 
ket-price. We are not dealing here with the market-price in 
so far as it differs from the market-value, but with the various 
modes of determining the market-value itself.^*^ 

In fact, assuming the strictest case (which, of course, 
is realised only approximately and with a thousand mod- 
ifications) of our first illustration, the market-value reg- 
ulated by the average values of the total mass of commodities 
is equal to the sum of their individual values, although this 
market-value is forced as an average value upon the commodi- 
ties produced at the extremes. Those who produce under the 
worst conditions must then sell their commodities below their 
individual values; those producing under the best conditions 
sell them above their individual values. 

In the second case, the two lots of commodities produced 

'" The controversy between Storch and Ricardo, incidental to their discussion 
of ground rent (a controversy which is merely referring to the same object, 
while the two opponents take no notice of one another) whether the market- 
value (or rather what they call market-price and price of production respectively) 
is regulated by the commodities produced under the least favorable conditions 
(Ricardo), or by those produced under the most favorable circumstances (Storch), 
resolves itself into the fact that both are right and both wrong, and that both 
(f them have left out of consideration the average case. Compare Corbett on 
the cases, in which the price is regulated by the commodities produced under 
the most favorable conditions. — " It is not meant to be asserted by him (Ricardo) 
that two particular lots of two different articles, as a hat and a pair of shoes, 
exchange with one another when those two particular lots were produced by equal 
quantities of labor. By ' commodity ' we must here understand the ' description 
of commodity,' not a particular individual hat, pair of shoes, etc. The whole 
labor which produces all the hats in England is to be considered, for this pur- 
pose, as divided among all the hats. This seems to me not to have been expressed 
at first, and in the general statements of this doctrine. (Observations on some 
verbal disputes in Political Economy, etc. London, 1821, pages b'A, 5-JJ 



Market Prices and Market Values. 217 

at the two extremes do not balance one another. The lot 
produced under the worst conditions decides the question. 
Strictly speaking, the average price, or the market-value, of 
everj individual commodity, or of every aliquot part of the 
total mass, would now be determined by the total value of 
the mass as ascertained by the addition of the values of the 
commodities i^roduced under different conditions, and by tlie 
aliquot part of this total value falling to the share of the in- 
dividual commodity. The market-value thus ascertained 
would be above the individual value, not only of the commodi- 
ties belonging to the most favorable extreme, but also of those 
belonging to the average lot. But still it would be below the 
individual value of the commodities produced at the most un- 
favorable extreme. The extent to which this market-value 
would approach the individual value of this extreme, or 
coincide with it, would depend entirely on the volume occu- 
pied in that sphere of commodities by the lot of commodities 
produced at the unfavorable extreme. If the demand exceeds 
the supply but slightly, then the individual value of the un- 
favorably produced commodities regulates the market-price. 

Finally, if the lot of commodities produced at the most 
favorable extreme occupies the greatest space, as it does in 
the third case, compared not only to the other extreme, but 
also to the average lot, then the market-value falls below the 
average value. The average value, computed by the addition 
of the sum of values of the two extremes and of the middle, 
stands here below that of the middle, and approaches it or 
recedes from it, according to the relative space occupied by 
the favorable extreme. If the demand is weak compared to 
the supply, then the favorably situated part, whatever may be 
its size, makes room for itself forcibly by contracting its price 
down to its individual value. The market-value cannot coin- 
cide with this individual value of the commodities produced 
under the most favorable conditions, except when the supply 
far exceeds the demand. 

This mode of determining market-values, which we have 
here outlined abstractly, is promoted on the real market by 
competition among the buyers, provided that the demand is 



2i8 Capitalist Production. 

just large enough to absorb the quantity of commodities at 
the values fixed in tiis manner. And this brings us to the 
second point. 

2) To say that a commodity has a use-value is merely to 
say that it satisfies some social want. So long as we were 
dealing simply with individual commodities, we could as- 
sume that the demand for any one commodity — its price im- 
pl^dng its quantity — existed without inquiring into the ex- 
tent to which this demand required satisfaction. But this 
question of the extent of a certain demand becomes essential, 
whenever the product of some entire line of production is 
placed on one side, and the social demand for it on the other. 
In that case it becomes necessary to consider the amount, the 
quantity, of this social demand. 

In the foregoing statements referring to market-value, the 
assumption was that the mass of the produced commodities re- 
mains the same given quantity, and that a change takes place 
only in the proportions of the elements constituting this mass 
and produced under different conditions, so that the market- 
value of the same mass of commodities is differently regii- 
lated. Let us suppose that this mass is of a quantity equal to 
the ordinary supply, leaving aside the possibility that a portion 
of the produced commodities may be temporarily withdrawn 
from the market. K'ow, if the demand for this mass also 
remains the same, then this commodity will be sold at its 
market-value ; no matter which one of the three aforemen- 
tioned cases may regulate this market-value. This mass of 
commodities does not only satisfy a demand, but satisfies it to 
its full social extent. On the other hand, if the quantity is 
smaller than the demand for it, then the market-prices differ 
from the market-values. And the first differentiation is that 
the market-value is always regulated by the commodity pro- 
duced under the least favorable circumstances, if the su])ply 
is too small, and by the commodity produced under the most 
favorable conditions, if the supply is too large. In other 
words, one of the extremes determines the market-value, in 
spite of the fact that the proportion of the masses produced 
under different conditions ought to bring about a different re- 



Market Prices and Market Values. 2ig 

suit. If the difference between demand and supply of tlie 
product is very considerable, then the market-price will like- 
wise differ considerably from the market-value in either di- 
rection. Now, the difference between tlie quantity of the 
produced commodities and the quantity of commodities which 
fixes their sale at their market-value may be due to two 
reasons. Either the quantity itself varies, by decreasing or 
increasing, so that there would be a reproduction on a different 
scale than the one which regulated a certain market-value. 
If so, then the supply changes while the demand remains un- 
changed, and we have a relative overproduction or underpro- 
duction. Or, the reproduction, and the supply, remain the 
same, while the demand is reduced or increased, which may 
take place for several reasons. If so, then the absolute mag- 
nitude of the supply is unchanged, while its relative magni- 
tude, compared to the demand, has changed. The effect is 
the same as in the first case, only it acts in the opposite direc- 
tion. Finally, if changes take place on both sides, either in 
opposite directions, or, if in the same direction, not to the 
same extent, in other words, if changes take place on both 
sides which alter the former proportion between these sides, 
then the final result must always lead to one of the two above- 
mentioned cases. 

The real difficulty in determining the meaning of the con- 
cepts supply and demand is that they seem to amount to a 
tautology. Consider first the supply, either the product on 
the market, or the product which can be supplied to the 
market. In order to avoid useless details, we shall consider 
only the mass annually reproduced in every given line of pro- 
duction and leave out of the question the varying faculty of 
some commodities to withdraw from the market and go into 
storage for consumption at a later time, for instance next 
year. This annual reproduction is expressed in a certain 
quantity, in weight or numbers, according to whether this 
mass of commodities is measured continuously or discontinu- 
ously. They represent not only use-value satisfying human 
wants, but these use-values are on the market in definite quan- 
tities. In the second place, this quantity of commodities has 



220 Capitalist Production. <;,' 

a definite market-value, wliicli may be expressed by a multiple '} 
of the market-value of the individual commodity, or of the {^| 
measure, which serve as units. There is, then, no necessary 
connection between the quantitative volume of the commodities 
on the market and their market-value, since many commodi- 
ties have, for instance, a high specific value, others a low 
specific value, so that a given sum of values may be repre- 
sented by a very large quantity of some, and a very small 
quantity of other commodities. There is only this connection 
between the quantity of articles on the market and the market- 
value of these articles : Given a certain, basis for the produc- 
tivity of labor in every particular sphere of production, the 
production of a certain quantity of articles requires a definite 
quantity of social labor time ; but this proportion diflf crs in 
different spheres of production and stands in no internal re- 
lation to the usefulness of these articles or the particular na- 
ture of their use-values. Assuming all other circumstances 
to be equal, and a certain quantity a of some commodity to 
cost h labor time, a quantity na of the same commodity 
will cost nh labor-time. Furthermore, if society wants to 
satisfy some demand and have articles produced for this pur- 
pose, it must pay for them. Since the production of com- 
modities is accompanied by a division of labor, society buys 
these articles by devoting to their production a portion of 
its available labor-time. Society buys them by spending a 
definite quantity of the labor-time over which it disposes. 
That part of society, to which the division of labor assigns 
the task of employing its labor in the production of the de- 
sired article, must be given an equivalent for it by other 
social labor incorporated in articles which it wants. Tliere 
is, however, no necessary, but only an accidental, connection 
between the volume of society's demand for a certain article 
and the volume represented by the production of this article 
in the total production, or the quantity of social labor spent 
on this article, the aliquot part of the total labor-power spent 
by society in the production of this article. True, every in- 
dividual article, or every definite quantity of any kind of 
commodities, contains, perhaps, only the social labor required 



Market Prices and Market Values. 221 

for it3 production, and from this point of view the market- 
value of this entire mass of commodities of a certain kind rep- 
resents only necessary labor. ISTevertheless, if this com- 
modity has been produced in excess of the temporary demand 
of society for it, so much of the social labor has been wasted, 
and in that case this mass of commodities represents a much 
smaller quantity of labor on the market than is actually in- 
corporated in it. (Only when production will be under the 
conscious and prearranged control of society, will society 
establish a direct relation between the quantity of social labor 
time employed in the production of definite articles and the 
quantity of the demand of society for them.) The commodi- 
ties must then be sold below their market-value, and a portion 
of them may even become unsaleable. The opposite takes 
place, if the quantity of social labor employed in the produc- 
tion of a certain kind of conunodities is too small to meet the 
social demand for them. But if the quantity of social labor 
spent in the production of a certain article corresponds to 
the social demand for it, so that the quantity produced is that 
which is the ordinary on that scale of production and for that 
same demand, then the article is sold at its market-value. 
The exchange, or sale, of commodities at their value is the 
rational way, the natural law of their equilibrium. It must 
be the point of departure for the explanation of deviations 
from it, not vice versa the deviations the basis on which this 
law is explained, 

^ow let us look at the other side, the demand. 

Commodities are bought either as means of production or 
means of subsistence, in order to be used for productive or 
individual consumption. It does not alter matters that some 
commodities may seiwe both ends. There is, then, a demand 
for them on the part of the producers (who are capitalists in 
this case, since we have assumed that the means of produc- 
tion have been transformed into capital) and on the part of 
the consumers. It appears at first sight as though these 
two sides ought to have a corresponding quantity of social 
demands offset by a corresponding quantity of social sup- 
plies in the various lines of production. If the cotton in- 



222 Ca/vlalist Production. 

dustry is to accomplish its annual reproduction on a given 
scale, it must produce the usual quantity of cotton and an 
additional quantity determined by the annual extension of 
reproduction through the necessities of accumulating cap- 
ital, always assuming other circumstances to remain t' e 
same. This is also true of means of subsistence. The 
working class must find at least the same quantity of necessi- 
ties on hand, if it is to continue living in the accustomed w'ay, 
although these necessities may be of different kinds and diftVr- 
ently distributed. And there must be an additional quantity 
to allow for the annual increase of population. This appli;'S 
with more or less modification to the other classes. 

It would seem, then, that there is on the side of demand a 
definite magnitude of social wants which require for their 
satisfaction a definite quantity of certain articles on the mar- 
ket. But the quantity demanded by these wants is very 
elastic and changing. Its fixedness is but apparent. If the 
means of subsistence were cheaper, or money-wages higher, 
the laborers would buy more of them, and a greater " social 
demand " would be manifested for this kind of commodities, 
leaving aside the question of paupers, whose " demand " is 
even below the narrowest limits of their physical wants. On 
the other hand, if cotton were cheaper, the demand of the ca]v 
italists for it would increase, more additional capital would 
be thrown into the cotton industry, etc. It must never be for- 
gotten that the demand for productive consumption is a de- 
mand of capitalists, under our assumption, and that its essen- 
tial purpose is the production of surplus-value, so that com- 
modities are produced only to this end. Still this does not 
argue against the fact that the capitalist as a buyer, for in- 
stance of cotton, represents the demand for this cotton. More- 
over it is immaterial to the seller of cotton, whether the buyer 
converts it into shirting or into guncotton, or whether he 
intends to make it into wads for his and the world's ears. 
But it does exert a considerable influence on the way in 
which the capitalist acts as a buyer. His demand for cotton 
is essentially modified by the fact that he disguises thereby 
his real demand, that of making profits. The limits within 



Market Prices and Market Values. 223 

which the need for co7nmodities on the market, the demand, 
differs quantitatively from the actual social need, varies nat- 
urally considerably for different commodities ; in other words, 
the difference between the demanded quantity of commodities 
and that quantity which would be demanded, if the money- 
prices of the commodities, or other conditions concerning the 
money or living of the buyers, Avere different. 

Nothing is easier than to realise the inequalities of de- 
mand and supply, and the resulting deviation of market- 
prices from market-values. The real difficulty consists in de- 
termining what is meant by balancing supply and demand. 

Demand and supply balance one another, when their mu- 
tual proportions are such that the mass of commodities of a 
definite line of production can be sold at their market-value, 
neither above nor below it. That is the first thing we hear. 

The second is this: If the commodities are sold at their 
market-values, then supply and demand balance. 

If demand and supply balance, then they cease to have any 
effect, and for this very reason commodities are sold at their 
market-values. If two forces exert themselves equally in op- 
posite directions, they balance one another, they have no in- 
fluence at all on the outside, and any phenomena taking place 
at the same time must be explained by other causes than the 
influence of these forces. If demand and supply balance one 
another, they cease to explain anything, they do not affect 
market-values, and therefore leave us even more in the dark 
than before concerning the reasons for the expression of the 
market-value in just a certain sum of money and no other. 
It is evident that the essential fundamental laws of produc- 
tion cannot be explained by the interaction of supply and de- 
mand (quite aside from a deeper analysis of these two mo- 
tive forces of social production, which would be out of place 
here). For these laws cannot be observed in their pure state, 
until the effects of supply and demand are suspended, are 
balanced. As a matter of fact supply and demand never bal- 
ance, or, if they do, it is by mere accident, it is scientifically 
rated at zero, it is considered as not happening. But political 
economy assumes that supply and demand balance one an- 



224 Capitalist Production. 

other. Why ? For no other reason, primarily, than to be 
able to study phenomena in their fundamental relations, in 
that elementary form which corresponds to their conception, 
that is to say, to study them unhampered by the disturbing 
interference of supply and demand. The other reason is to 
find the actual tendencies of economic movements and to fix 
them, as it were. For the inequalities are of an antagonistic 
nature, and since they continually follow one after another, 
they balance one another by their opposite movements, by 
their opposition. Since supply and demand never balance 
each other in any given case, their differences follow one 
another in such a way that supply and demand are always 
balanced only when looking at them from the point of view 
of a greater or smaller period of time. For the result of a 
deviation in one direction is a deviation in the opposite direc- 
tion. Such a balance is only an average of past movements, 
a result of a continual movement in contradictions. By this 
means the market-prices differing from the market-values 
reduce one another to the average of market-values and bal- 
ance the different plus and minus in their divergencies. And 
this average figure has not merely a theoretical, but also a 
practical, value for capital, since its investment is calculated 
on the fluctuations and compensations of more or less fixed 
periods of time. 

The relation of demand and supply explains, therefore, 
on the one hand only the deviations of market-prices from 
market-values, and on the other the tendency to balance these 
deviations, in other words, to suspend the effect of the relation 
of demand and supply. (Such exceptions as commodities 
having prices without having any value are not considered 
here.) Demand and supply may bring about a balance in 
the effects caused by their inequalities in many different ways. 
For instance, if the demand, and consequently the market- 
price, fall, capital may be withdrawn and the supply reduced. 
But instead it may happen that the market-value itself is re- 
duced and balanced with the market-price through inventions, 
which reduce the necessary labor time. Vice versa, if the 
demand increases, and consequently the market-price rises 



Market Prices and Market Values. 225 

above the market-value, too much capital may flow into this 
line of production and production may be increased to such an 
extent, that the market-price finally falls below the market- 
value. Or, it may lead to a rise of prices which cuts down 
the demand. It may also bring about a rise in the market- 
value itself for a shorter or longer time, in some lines of pro- 
duction, in which a portion of the desired products must be 
produced under more unfavorable conditions during this 
period. 

If demand and supply detemiine the market-price, so does 
the market-price, and in the further analysis the market- 
value determine demand and supply. This is obvious in the 
case of demand, which moves in opposition to price, rising 
when prices fall, and falling wdien prices rise. But it may 
also be noted in the case of suppl;)\ For the prices of the 
means of production wdiich are incorporated in the supplied 
commodities determine the demand for these means of pro- 
duction, and thus the supply of the commodities whose supply 
implies the demand for these means of production. The 
prices of cotton are determining elements for the supply of 
cotton goods. 

This confusion of a determination of prices by demand and 
supply, and at the same time a determination of supply and 
demand by prices, is worse confounded by the determination 
of the supply by the demand, and the demand by supply, of 
the market by production, and of production by the market.^ ^ 

'^ The following sagacious statements are great nonsense: "Where the quantity 
of wages, capital, and land, required to produce an article, have become different 
from what they were, that which Adam Smith calls the natural price of it, is 
also different, and that price which was previously its natural price, becomes, 
with reference to this alteration, its market-price; because, though neither the 
supply, nor the quantity wanted may have changed " — both of them change here, 
just because the market-value, or, in the case of Adam Smith, the price of pro- 
duction, changes in consequence of a change of value — " that supply is not now 
exactly enough for those persons who are able and willing to pay what is now 
the cost of production, but is either greater or less than that; so that the pro- 
portion between the supply, and what is, with reference to the new cost of pro- 
duction, the effectual demand, is different from what it was. An alteration in the 
rate of supply will then take place, if there is no obstacle in the way of it, and 
at last bring the commodity to its new natural price. It may then seem good 
to some persons to say that, as the commodity gets to its natural price by an 
alteration in its supply, the natural price is as much owing to one proportion 
between the demand and supply, as the market-price is to another; and conse- 

O 



226 Capitalist Production. 

Even the ordinary economist (see our foot-note) recognizes 
that the proportion between supply and demand may vary in 
consequence of a change in the market-value of commodities, 
without a change in the demand or supply by external cir- 
cumstances. The author of the Observations continues after 
the passage quoted in the foot-note : ^' This proportion " 
(between demand and supply) '' however, if we still mean by 
' demand ' and ' natural price ' what we meant just now, 
M'hen referring to Adam Smith, must always be a proportion 
of equality; for it is only when the supply is equal to the 
effectual demand, that is, to that demand, which will pay 
neither more nor less than the natural price, that the natural 
price is in fact paid; consequently there may be two very 
different natural prices, at different times, for the same com- 
modity, and yet the proportion which the supply bears to 
the demand, be in both cases the same, namely the proportion 
of equality." It is admitted, then, that with two different 
natural prices of the same commodity at different times de- 
mand and supply may balance one another and must balance 
one another, if the commodity is to be sold at its natural 
price in both instances. Since there is no difference in the 
proportion of supply and demand in either case, but only a 
difference in the magnitude of the natural price itself, it 
follows that this price is determined independently of de- 
mand and supply, and cannot very well be determined by 
them. 

In order that a commodity may be sold at its market-value, 
that is to say, in proportion to the necessary social labor con- 
tained in it, the total quantity of social labor devoted to the 

quently, that the natural price, just as much as the market-price, depends on the 
pioportion that demand and supply bear to each other. (The great principle of 
demand and supply is called into action to determine what A. Smith calls natural 
prices as well as market-prices. Malthus.)" — Observations on certain verbal dis- 
putes, etc., London, 1821, pages 60 and 61. — The good man does not grasp the 
fact that it is precisely the change in the cost of production, and thus in the 
value, which caused a change in the demand, in the present case, and thus in the 
proportion between demand and supply, and that this change in the demand may 
bring about a change in the supply. This would prove just the reverse of what 
our good thinker wants to prove. It would prove that the change in the cost 
of production is by no means due to the proportion of demand and supply, but 
rather regulates this proportion. 



Market Prices and Market Value. 



22^ 



total mass of this kind of commodities must correspond to the 
quantity of the social demand for them, meaning the solvent 
social demand. Competition, the fluctuations of market- 
prices which correspond to tlie fluctuations of demand and 
supply, tend continually to reduce the total quantity of labor 
devoted to each kind of commodities to this scale. 

The proportion of supply and demand repeats, in the flrst 
place, the relation of the use-value and exchange-value of com- 
modities, of commodity and money, of buyer and seller; in 
the second place, the relation of producer and consumer, al- 
though both of them may be represented by third merchants. 
In studying buyers and sellers, it is sufiicient to confront 
them individually, in order to set forth their relations. Three 
individuals suffice for the complete metamorphosis of com- 
modities, and therefore for the complete transactions of sale 
and purchase. A converts his commodity into the money of 
B, to whom he sells his commodity, and he reconverts his 
money into commodities which he buys for it from C. The 
whole transaction takes place between these three. Further- 
more: In the study of money it had been assumed that the 
commodities are sold at their values, because there was no 
reason to take into consideration any divergence of prices 
from values, it being a question of changes of form experi- 
enced by the commodities in their transfonnation into money 
and their reconversion from money into commodities. As 
soon as a commodity has been sold and a new commodity 
bought with the receipts, we have the entire metamorphosis 
before us, and for the consideration of this process it is inmia- 
terial whether the price of the commodity stands above or 
below its value. The value of the commodity is essential as 
a basis, because the concept of money cannot be developed on 
any other foundation but this one, and because price, in its 
general meaning, is but value in the form of money. Of 
course, it is assumed in the study of money as a medium of 
circulation that more than one metamorphosis of a certain 
commodity takes place. It is the social interrelation of these 
metamorphoses which is studied. Only by this means do wc 
arrive at the circulation of money and at the development 



228 Capitalist Production. 

of its fimction as a medium of circulation. While this con- 
nection of the matter is very important for the transition of 
money into its function of a circulating medium, and for its 
resulting change of form, it is of no moment for the transac- 
tion between the individual buyer and seller. 

In a question of supply and demand, however, the supply 
means the sum of the sellers, or producers, of a certain kind 
of commodities, and the demand the sum of the buyers, or 
consumers, of the same kind of commodities (both produc- 
tive and individual consumers). There two bodies react on 
one another as units, as aggregate forces. The individual 
counts here only as a part of a social power, as an atom of 
some mass, and it is in this form that competition enforces the 
social character of production and consumption. 

That side of competition, which is momentarily the weaker, 
is also that in Avhich the individual acts independently of the 
mass of his competitors and often Avorks against them, whereby 
the dependence of one upon the other is impressed upon them, 
while the stronger side always acts more or less unitedly 
against its antagonist. If the demand for this particular kind 
of commodities is larger than the supply, then one buyer out- 
bids another, within certain limits, and thereby raises the 
price of the commodity for all of them above the market-price, 
while on the other hand the sellers unite in trying to sell at 
a high price. If, vice versa, the supply exceeds the demand, 
some one begins to dispose of his goods at a cheaper rate and 
the others must follow, while the buyers unite in their efforts 
to depress the market-price as much as possible below the mar- 
ket-value. The common interest is appreciated only so long 
as each gains more by it than Avithout it. And common action 
ceases, as soon as this or that side becomes the weaker, when 
each one tries to get out of it by his own devices with as little 
loss as possible. Again, if some one produces more cheaply 
and can sell more goods, thus assuming more room on the 
market by selling below the current market-price, or market- 
value, he does it, and thereby he begins an action which grad- 
ually compels the others to introduce the cheaper mode of pro- 
duction and which reduces the socially necessary labor to a 



6 

Market Prices and Market Values. 229 

new, and lower, level. If one side has the advantage, every- 
one belonging to it gains. It is as though they had exerted 
their common monopoly. If one side is the weaker, then 
every one may try on his own hook to be the stronger (for in- 
stance, any one working with lower costs of production), or 
at least to get off as easily as possible, and in that case he 
does not care in the least for his neighbor, although his ac- 
tions affect not only himself, but also all his fellow strugglers.^^ 

Demand and supply imply the transformation of values into 
market-prices, and to the extent that they proceed on a capi- 
talist basis, to the extent that the commodities are products of 
capital, they are based on capitalist processes, that is, on quite 
different and more complicated conditions than the mere pur- 
chase and sale of goods. In these capitalist processes it is 
not a question of the formal conversion of the value of com- 
modities, into prices, not a question of a mere change of form. 
It is a matter of definite differences in quantity between mar- 
ket-prices and market-values, and, further, prices of produc- 
tion. In simple purchases and sales, it is enough to consider 
merely the producers of articles as such. But supply and de- 
mand, in a wider analysis, imply the existence of different 
classes and sections of classes which divide the total revenue 
of society among themselves and consume it as revenue among 
themselves, which, therefore, constitute the demand in the 
form of revenue. On the other hand, the attempt to grasp the 
question of the supply and demand among the producers as 
such requires an analysis of the total conformation of the cap- 
italist process of production. 

Under capitalist production it is not a question of merely 
throwing a certain mass of values into circulation and ex- 
changing that mass for equal values in some other form, 
whether of money or other commodities, but it is also a ques- 

'- " If each man of a class could never have more than a given share, or aliquot 
part of the gains and possessions of the whole, he would readily combine to raise 
the gains" (he does it as soon as the proportion of demand to supply permits it); 
" this is monopoly. But where each man thinks that he may any way increase 
the absolute amount of his own share, though by a process which lessens the 
whole amount, he will often do it; this is competition." An Inquiry into thost 
Principles respecting the Nature of Demand, etc, London, page 105. 



230 Capitalist Production. 

tion of advancing capital in production and realising on it 
as much surplus-value, or profit, in proportion to its magni- 
tude, as any other capital of the same or of other magnitudes 
in whatever line of production. It is a question, then, of sell- 
ing the commodities at least at prices which will yield the 
average profit, in other words, at prices of production. Capi- 
tal comes in this form to a realisation of the social nature of 
its power, in which every capitalist participates in proportion 
to his share in the total social capital. 

In the first place, capitalist production is essentially in- 
different to the particular use-value, or the peculiarity, of any 
commodity produced by it. In every sphere of production 
it is the sole purpose of production, to secure surplus-value, to 
appropriate in the product of labor a certain quantity of un- 
paid labor. And it is likewise the nature of the wage-labor 
subject to capital to be indifferent to the specific character of 
its labor, to transform itself in accord with the requirements 
of capital, and to submit to being transferred from one sphere 
of production to another. 

In the second place, one sphere of production is now as 
good or as bad as another. Every one of them yields the 
same profit, and every one of them would be useless, if the 
commodities produced by them did not satisfy some social 
need. 

Now, if the commodities are sold at their values, then, as 
we have shown, considerably different rates of profit arise in 
the various spheres of production, according to the different 
organic composition of the masses of capital invested in them. 
But capital withdraws from spheres with low rates of profit 
and invades others which yield a higher rate. By means of 
this incessant emigration and immigTation, in one word, by 
its distribution among the various spheres in accord with a 
rise of the rate of profit here, and its fall there, it brings 
about such a proportion of supply to demand that the average 
profit in the various spheres of production becomes the same, 
so that values are converted into prices of production. This 
equilibration is accomplished by capital in a more or less per- 
fect degi-ee to the extent that capitalist development is ad- 



Market Prices and Market J\iliies. 231 

vanced in a certain nation, in other wordsj to the extent that 
conditions in the respective countries are adapted to the capi- 
talist mode of production. As capitalist development pro- 
ceeds, it develops also its own peculiar conditions and subjects 
to its specific character and its immanent laws all the social 
requirements on which the process of production is based. 

The incessant equilibration of the continual differences is 
accomplished so much quicker, 1), the more movable capital 
is, the easier it can be shifted from one sphere and one place 
to another; 2) the quicker labor-power can be transferred 
from one sphere to another and from one local point of pro- 
duction to another. The first condition implies complete 
freedom of trade in the interior of society and the removal of 
all monopolies with the exception of those which naturally 
arise out of the capitalist mode of production. It implies, 
furthermore, the development of the credit-system, which con- 
centrates the inorganic mass of the disposable social capital 
instead of leaving it in the hands of individual capitalists. 
Finally it implies a subordination of the various spheres of 
production to the control of capitalists. This last implica- 
tion is of itself included in the assumption that it is a ques- 
tion of a transformation of values into prices of production in 
all capitalistically exploited spheres of production. But this 
equilibration meets great obstacles, whenever numerous and 
large spheres of production, which are not operated on a cap- 
italistic basis (such as farming by small farmers), are inter- 
polated between the capitalist spheres and interrelated with 
them. A great density of population is also a requirement. — 
The second condition implies the abolition of all laws which 
prevent the laborers from moving from one sphere of produce 
tion to another and from one local center of production to an- 
other; an indifference of the laborer to the nature of his labor; 
the greatest possible reduction of labor in all spheres of pro- 
duction to simple labor ; the elimination of all craft prejudices 
among laborers ; and last, not least, a subjugation of the la- 
borer under the capitalist mode of production. More de- 
tailed statements concerning these points belong in a special 
analysis of competition* 



22^2 Capitalist Production. 

It follows from the foregoing that the individual capitalist 
as well as the capitalists as a whole in each particular sphere 
of production are participants in the exploitation of the total 
working class by the total capital, and in the degree of that 
exploitation, not only out of general class sympathy, but also 
for direct economic reasons, because, assuming all other con- 
ditions, among them the value of the advanced constant cap- 
ital, to be given, the average rate of profit depends on the in- 
tensity of exploitation of the total labor by the total capital. 

The average profit coincides with the average sui*plus-value 
produced for each 100 of capital, and so far as the surplus- 
value is concerned, the foregoing statements apply as a matter 
of course. In the determination of the rate of profit, the 
value of the advanced capital becomes an additional element. 
In fact, the direct interest taken by the capitalist, or the capi- 
tal, of any individual sphere of production in the exploitation 
of the laborers directly employed by him, or it, is limited to 
the endeavor to make an extra gain, a profit exceeding the 
average, either by exceptional overwork, or by a reduction of 
wages below the average, or by an exceptional productivity of 
labor. Aside from this, a capitalist who would not employ 
any variable capital, and therefore no laborers (an exag- 
gerated assumption), Avould be as much interested in the ex- 
ploitation of the working class by capital, and would derive 
his profit quite as much from unpaid surplus-labor, as a capi- 
talist who would employ only variable capital (another exag- 
geration), and who would invest his entire capital in wages. 
The degree of exploitation of labor depends on the average 
intensity of labor, if the working day is given, and on the 
length of the working day, if the average intensity of exploi- 
tation is given. The degree of exploitation of labor deter- 
mines the size of the rate of surplus-value, and therefore the 
size of the mass of surplus-value for a given total mass of 
variable capital, and consequently the magnitude of the profit. 
The individual capitalist, as distinguished from his sphere, 
has the same special interest in the exploitation of the laborers 
personally employed by him that the capital of a certain 



Market Prices and Market Values. 233 

s}«iiere, as distinguished from the total social capital, has in 
tie exploitation of the laborers directly employed by it. 

On the other hand, every particular sphere of capital, and 
every individual capitalist, has the same interest in the pro- 
ductivity of the social labor employed by the total capital. 
For two things depend on this productivity : In the first 
place, the mass of use-values by which the average profit is 
expressed ; and this is doubly important, where this average 
profit serves as a fund for the accumulation of new capital and 
as a fund for revenue to be spent in enjoyment. In the sec- 
ond place, the amount of the value of the total capital invested 
(constant and variable), which, with a given amount of sur- 
plus-value, or profit, for the whole capitalist class, determines 
the rate of profit, or the profit on a certain percentage of cap- 
ital. The special productivity of labor in any particular 
sphere, or in any individual business of this sphere, interests 
only those capitalists who are directly engaged in it, since it 
enables that particular sphere, or that individual capitalist, to 
make an extra profit over that of the total capital. 

Here, then, we have the mathematically exact demonstra- 
tion, how it is that the capitalists form a veritable freemason 
society arrayed against the whole working class, however much 
they may treat each other as false brothers in the competition 
among themselves. 

The price of production includes the average profit. We 
call it price of production. It is, as a matter of fact, the 
same thing which Adam Smith calls natural price, Eicardo 
price of production, or cost of production, and the physiocrats 
prix necessaire, because it is in the long run a prerequisite of 
supply, of the reproduction of commodities in every individual 
sphere. ^^ But none of them has revealed the difference be- 
tween price of production and value. We can well under- 
stand, then, why these same economists, who always resist a 
determination of the value of commodities by labor-time, by 
the quantity of labor contained in them, always speak of prices 
of production as centers, around which market-prices fluctu- 

3' Malthus. 



234 Capitalist Production. 

ate. Thev can afford to do that, because the price of produc- 
tion is an utterly external and, at first glance, meaningless 
form of the value of commodities, a form as seen in competi- 
tion and thus reflected in the mind of the vulgar capitalist, 
and consequently in that of the vulgar economists. 

Our analysis resulted in the discovery that the market-value 
(and everything said concerning it applies with the necessary 
modifications to the price of production) implies a surplus- 
profit for those who produce in any particular sphere of pro- 
duction under the most favorable conditions. With the ex- 
ception of crises, and of over-production in general, this ap- 
plies to all market-prices, no matter how much they may de- 
viate from market-values or market-prices of production. For 
the market-price signifies that the same price is paid for com- 
modities of the same kind, although they may have been pro- 
duced under very different individual conditions and may 
have considerably different cost-prices. (We do not speak at 
this point of any surplus-profits due to monopolies in the 
strict meaning of the term, whether they arc artificial or 
natural.) 

A surplus-profit may also arise, when certain spheres of 
production are in a position to evade the conversion of the 
values of their commodities into prices of production, and 
thus a reduction of their profits to the average profit. We 
shall devote more attention to the further modifications of 
these two forms of surplus-profit in the part dealing with 
ground-rent. 



CHAPTEK XI. 

EFFECTS OF GENERAT, FLUCTUATIONS OF WAGES ON PRICES OF 

PRODUCTION. 

Let the average composition of social capital be 80 c -1- 20 v, 
with a profit of 20%. The rate of surplus-value is then 
100%. A general increase of Avages, all other things remain- 
ing the same, is a reduction of the rate of surplus-value. In 



Fluctuations of Wages and Prices. 235 

the case of the average capital, profit and surplus-value are 
identical. Let wages rise by 25%. Then the same quantity 
of labor, which was formerly set in motion with 20, costs 25. 
Instead of 80 c + 20 v -|- 20 p, we have then for the value of 
one turn-over 80 c -]- 25 v -f~ 15 p. The labor set in motion 
by the variable capital still produces a value of 40, the same 
as before. If v rises from 20 to 25, then the surplus p, or s. 
amounts only to 15. The profit of 15 on a capital of 105 is 
14y%, and this would be the new average rate of profit. 
Since the price of production of the commodities produced by 
the average capital coincides with their value, the price of 
production of these commodities would remain unchanged. 
The raising of wages would have brought about a reduction of 
profits, but no change in the value and price of the commodi- 
ties. 

Formerly, so long as the average profit was 20%, the price 
of production of the conmiodities produced in one period of 
turn-over was equal to their cost-price plus a profit of 20% on 
this cost-price, in other words k -|- kp' = k -|- -j^. In this 
formula k is a variable magnitude, changing according to the 
value of the means of production which are incorporated in 
the commodities, and according to the amount of wear trans- 
ferred from the fixed capital to the product. Xow the price 
of production would amount to k -)- ^^^-. 

Xow let us first select a capital, whose composition is lower 
than the original composition of the average social cajv 
ital of 80 c -f 20 V (which has now been transformed into 
76/y c -{- 23-|-f v), for instance a capital of 50 c -|- 50 v. In 
this case, the price of production of the annual product, as- 
suming for the sake of simplicity that the entire fixed capital 
passes through wear into the product and that the time of 
turn-over is the same as that in the first case, would have been 
50 c -|- 50 V -f- 20 p, or 120, before the raising of wages. A 
raising of wages by 25% means for the same quantity of labor 
a raising of the variable capital from 50 to 62^. If the an- 
nual product were sold at the former price of production of 
120, then we should have the formula 50 c -j- 62^ v -|- 7^ p, 
or a rate of profit of 6f%. But the new average rate of 



236 Capitalist Production. 

profit is 14-1 %, and since we assume all other circumstances 
to remain the same, this capital of 50 c + 62^ v will also have 
to make this profit. Now, a capital of 112^ makes a round 
profit of le-^at a rate of profit of 14|-%. Therefore the 
price of production of the commodities produced by this cap- 
ital is now 50 c + 62^ V + ^^TtV = 1283^. In consequence 
of a raise in wages of 25%, the price of production of the 
same quantity of the same commodities has risen from 120 
to 128y'^, or more than 7%. 

Vice versa, let us select a sphere of production of a higher 
composition than the average capital, for instance a capital of 
92 c -|- 8 V. The original average profit in this case would 
still be 20, and if we assume once more that the entire fixed 
capital pa^ises into the annual product, and that the time of 
turn-over is the same as in the first and second case, the price 
of production of the commodities is also 120. 

In consequence of the rise of wages by 25% the variable 
capital for the same quantity of labor rises frdm 8 to 10, the 
cost-price of the commodities from 100 to 102, while the aver- 
age rate of profit has fallen from 20% to 14y%. Now 
100: 14f = 102 :14^ (approximately). The profit now 
falling to the share of 102 is 14 -f-- Therefore the total prod- 
uct sells at k -j- kp', or 102 -j- l^i f j ^^ H^ 7 • "^^^ price of 
production has fallen from 120 to 116 4-, or more than 3%. 

Consequently, if wages are raised by 25%, 

1) the price of production of tlie commodities of a capital 
of average composition is not changed ; 

2) the price of production of the commodities of a capital 
of lower composition rises, but not in the same proportion in 
which the jDrofit falls ; 

3) the price of production of the commodities of a capital 
of higher composition falls, but not as much as the profit. 

Since the price of production of the commodities of the 
average capital remains the same and equal to the value of 
the product, it follows that the sum of the prices of produc- 
tion of the products of all capitals remain the same and equal 
to the sum of the values produced by the total social capital. 
The increase on one side is balanced by the decrease on the 



Fluctuations of Wages and Prices. 237 

other and the level of the average social capital maintained for 
the total social capital. 

Seeing that the price of production in the second illustration 
rises, while it falls in the third, it is evident that these opposite 
effects brought about by a fall in the rate of surplus-value 
or by a general rise of wages that there is no prospect of any 
compensation in the price for the rise in wages, since the fall 
of the price of production in No. Ill cannot very well com- 
pensate the capitalist for the fall in the profit, and since the 
rise of the price in No. II does not prevent a fall in profit. On 
the contrary, in either case, whether the price rises or falls, 
the profit remains the same as that of the average capital 
whose price remains unchanged. It is the same average profit, 
which has fallen by 5%, or about 25%, in the case of II as well 
as III. It follows from this, that if the price did not rise in II 
and fall in III, II would have to sell below and III above the 
new, recently reduced, average profit. It is quite evident that 
a rise of wages must affect a capitalist who has invested one- 
tenth of his capital in wages differently from one who has 
invested one-fourth or one-half, according to whether 50, 25, 
or 10 per hundred of capital are advanced for wages. An 
increase in the price of production on one side, and a fall 
on the other, according to whether a capital is below or above 
the average social composition, is effected only by leveling to 
the new reduced average profit. It is clear that, when in conse- 
quence of the establishment of a general rate of profit for the 
capitals of lower composition (those wherein v is above the 
average) the values are lowered by their transformation into 
prices of production, but the values for the capitals of higher 
composition will be increased. 

Now, how would a general fall of wages, and a correspond- 
ing general rise of the rate of profit, and thus of the average 
profit, affect the prices of production of commodities produced 
by capitals diverging in opposite directions from the average 
social composition? We have but to reverse the foregoing 
statements, in 'order to find the answer (which Ricardo did not 
analyse). 

I. Average capital 80 c + 20 v = 100; rate of surplus- 
value 100% ; price of production = value of commodities = 
80 c + 20 V -f 20 p = 120; rate of profit 20%. Let wages 
fall by one-fourth. Then the same constant capital is set in 
motion by 15 v, instead of 20 v. We have then as the value 
of commodities 80 c + 15 v -f 25 p = 120. The quantity 



238 Capitalist Production. 

of labor employed by v remains the same, only the newly 
created value is differently distributed between the capitalist 
and the laborers. The surplus-value increases from 20 to 25, 
and the rate of surplus-value from f^ to ff , in other words, 
from lOO^c to 1GG|%. The profit on 95 is now 25, so that 
the rate of profit per 100 is 26y9-. The composition of the 
capital in percentages is now 84y9- + 15 ^f= 100. 

II. Lower composition. Original composition, as above, 
50 c + 50 V. By the fall of wages by one-fourth v is reduced 
to 37^, and consequently the advanced total capital to 50 c + 
37^ V = 87^. Applying to this the new rate of profit of 
26^%, we get 100 : 26^%= §'^2 : 23^\. The same mass of 
commodities which formerly cost 120, now costs 87^ -j- 23^8- 
= 100i§-. A fall in prices of almost lO^c. 

III. Higher composition. Original composition 92 c -|- 
8 V ^ 100. The fall in wages by one- fourth reduces 8 v to 
6 V, and the total capital to 98. Consequently 100 : 26^% = 
98 : 25 J |-. The price of production of the commodities, for- 
merly 100 -f 20 =. 120, is now, after the fall in wages, 98 -f 
25if= 123^1-. A rise by almost 47o. 

We see, then, that we have but to follow the preceding de- 
velopment in the opposite direction with the necessary, modifi- 
cations ; that a general fall of wages carries with it a general 
rise of surplus-value, of the rate of surplus-value, and, other 
circumstances remaining the same, also of the rate of profit, 
although expressed by different proportions ; a fall in the 
prices of production for the commodities produced by capi- 
tals of lower composition, a rise in the prices of production 
for commodities produced by capitals of higher composition. 
The result is just the reverse of that following a general rise 
of wages.^* In both cases, whether of a rise or a fall, the as- 
sumption is that the working day remains the same, also the 
prices of the means of subsistence. Under these circum- 

^* It is very peculiar that Ricardo (who naturally proceeds differently from us. 
since he did not understand the compensation of values to prices of production) 
did not even think of this eventuality, but considered only the first case, that of 
a rise of wages and its influence on the prices of production of commodities 
And the servile herd of imitators did not even make an attempt to advance so 
much as to apply the practical, or even tautological, test. 



Some After Remarks. 239 

stances, a fall in wages is possible only, if wages stood higher 
than the normal price of labor, or if they are depressed below 
this price. The way in which this condition is modified, if 
the rise or fall of wages is due to a change in vahie, and con- 
sequently in the price of production of commodities usually 
consumed by the laborer, will be to a certain extent analysed 
in the part dealing with ground-rent. At this place we make 
for once and all the following statements: 

If a rise or fall in wages is due to a change in the value of 
the necessities of life, then a modification of the above findings 
can take place only to the extent that the commodities, whose 
variation of price raises or lowers the variable capital, pass 
also as constituent elements into the constant capital and 
consequently do not affect wages alone. But to the extent 
that they affect only wages, the above analysis contains all that 
needs to be said. 

In this entire chapter, it is assumed as a fact that there are 
in existence a general rate of profit, an average profit, and a 
conversion of values into prices of production. The question 
was merely in what manner a general rise or fall in wages 
affected the prices of production of commodities, which were 
assumed to exist. This is but a very secondary question com- 
pared with the important points analysed in this part. But 
it is the only relevant question treated by Ricardo, and we 
shall see that he treated even this but onesidedly and imper- 
fectly. 



CHAPTER XII. 

SOME AFTER REMARKS. 

I. Causes Implying a Y aviation of the Price of Production. 

The price of production of a commodity can vary only from 
two causes: 

1) The average rate of profit varies. This can be due only 
to a change in the average rate of surplus-value, or, if the 
average rate of surplus-value remains the same, by a change 



240 Capiiidist Production. ' 

iu the proportion of the sum of the appropriated surplus-values 
to the sum of the advauced total capital of society. 

Unless a variation of the rate of surplus-value is due to a 
depression of wages below normal, or their rise above normal, 
— and such movements must be considered as mere oscilla- 
tions — it can take place only for two reasons : Either the 
value of labor -power may have risen or fallen. The one even- 
tuality is as impossible as the other without a change in the 
productivity of that labor which produces means of subsist- 
ence, in other w^ords, without a change in the value of the 
commodities which are consumed by the laborer. Or, the pro- 
portion of the sum of appropriated surplus-values to the ad- 
vanced total capital of society varies. Since the variation in 
this case is not due to the rate of surplus-value, it must be due 
to the total capital, or rather to its constant part. The mass 
of this part, technically speaking, increases or decreases in 
proportion to the quantity of labor-power bought by the varia- 
ble capital, and the mass of its value increases or decreases 
with the increase or decrease of its own mass. Its mass of 
value, then, increases or decreases likewise in proportion to 
the mass of the value of the variable capital. If the same 
labor sets more constant capital in motion, labor has become 
more productive. If less, less productive. There has then 
been a change in the productivity of labor, and a change must 
have taken place in the value of certain commodities. 

The following rule, then, applies to both cases : If the 
price of production of a certain commodity changes in conse- 
quence of a change in the average rate of profit, its o^vn value 
may have remained unchanged, but a change must have taken 
place in the value of other commodities. 

2) The average rate of profit remains unchanged. In that 
case the price of production of a commodity cannot change, 
unless its own value has changed. This may be due to the 
fact that more or less labor is required to produce this com- 
modity, either because the productivity of that labor varies, 
which produces this commodity in its final form, or of that 
laboT which produces the commodities consumed in its produc- 
tion. Cotton yarn may vary in its price of production, either 



Some After Remarks. 241 

because cotton is produced at a lower figure, or because the 
labor of spinning has become more productive in consequence 
of improved machinery. 

As we have seen before, the price of production is equal to 
k -f- p, equal to cost-price plus profit. This implies k -j- kp', 
and k, cost-price, stands here for a variable magnitude, which 
changes according to different spheres of production, but is 
everywhere equal to the value of the constant and variable 
capital consumed in the production of commodities, while p' 
stands for the percentage of the average rate of profit. If 
k = 200, and p' = 20%, the price of production k -|- kp' is 
equal to 200 + 200 tVo" = 200 + 40 = 240. It is evident 
that this price of production may remain the same, although 
the value of the commodities may change. 

All changes in the price of production of commodities re- 
duce themselves in the last analysis to changes in value. But 
not every change in the value of commodities needs to find 
expression in a change of the price of production. For this 
price is not determined merely by the value of any particular 
commodity, but by the aggregate value of all commodities. 
A change in commodity A may eventually be balanced by an 
opposite change of commodity B, so that the general pro- 
portion remains the same. 



II. Price of Production of Commodities of Average Com- 
position. 

We have seen that a deviation of the prices of production 
from the values may be brought about by the following means : 

1) By adding to the cost-price of a commodity, not the 
surplus-value contained in it, but the average profit. 

2) By transferring a price of production, wdiich thus dif- 
fers from the value of some particular commodity, to the cost- 
price of some other commodity which consumes the first com- 
modity as one of its elements, so that the cost-price of a cer- 
tain commodity may already contain a deviation from the 
value of the means of production consumed by it, quite aside 
from the deviation, which it may still experience on its own 



242 Capitalist Production. 

account through a difference between the average profit and 
the surplus-value. 

It is therefore possible that the cost-price may differ from 
the sum of the values of those elements which- make up this 
portion of the price of production, even in the case of com- 
modities produced by capitals of average composition. Take 
it that the average composition is 80 c + 20 v. Now it is 
possible that in the actual capitals of this composition 80 e 
may be greater or smaller than the value of c, the constant 
capital, because this c may be made up of commodities whose 
price of production differs from their value. In the same 
way 20 v might differ from its value, if the laborer consumes 
commodities whose price of production differs from their 
value, in which case the laborer would work a longer or 
shorter time for their reproduction, and would thus perform 
more or less necessary labor, then Avould be required, if the 
price of production of the necessities of life coincided with 
their value. 

However, this possibility does not alter the correctness of 
the rules laid down for commodities of average composition. 
The quantity of profit falling to the share of these commodi- 
ties is equal to the quantity of surplus-value contained in 
them. For instance, the most important point in a capital 
of the above composition, 80 c -j-20 v, so far as the deter- 
mination of surplus-value is concerned, is not whether these 
figures are expressions of actual values, but whether this rep- 
resents their actual proportion to one another, in other words, 
whether v is one-fifth, and c four-fifths, of the total capital. 
Whenever this is actually the case, as was assumed above, 
then the surplus-value produced by v is equal to the average 
profit. On the other hand, seeing that this surplus-value is 
equal to the average profit, the price of production, or cost- 
pnce plus profit, k + p, is equal to k + s, that is, practically 
equal to the value of these commodities. This implies that a 
rise or a fall in wages would not change the price of pro- 
duction, k -f- p, any more than it would change the value of 
these comm.odities. It would merely effect a corresponding 
opposite movement on the side of profit, a fall or a rise. For 



Some After Remarks. 243 

if a rise or a fall of wages were to bring about a change in the 
price of commodities of average composition, then the rate 
of profit in these spheres of average composition would rise 
above, or fall below^ the level it holds in other spheres. The 
sphere of average composition maintains the same level of 
profit as the other spheres only so long as the price remains 
unchanged. The practical result in the case of this sphere of 
average composition is the same as though its products were 
sold at their value. For if commodities are sold at their 
actual values, it is evident that, other circumstances remain- 
ing equal, a rise or a fall in wages will cause a corresponding 
fall or rise in profits, but no change in the value of commod- 
ities, and that under all circumstances a rise or a fall in 
wages can never affect the value of commodities, but only the 
magnitude of the surplus-value. 



III. Fluctuations foi' which the Capitalist mahes Allowance. 

It has been said that competition levels the rates of profit 
of the different spheres of production into an average rate 
of profit and thereby transforms the values of the products of 
these different spheres into prices of production. This is ac- 
complished by continually transferring capital from one 
sphere to another, in which the profit happens to stand above 
the average for the moment. The fluctuations of profit due 
to the cycle of fat and lean years, following each other in any 
given line of industry during given periods, must be taken 
into consideration, of course. These incessant emigrations 
and immigrations of capital, which take place between the 
different spheres of production, create rising and falling move- 
ments of the rate of profit. These movements balance one 
another more or less and thereby create a tendency to reduce 
the rate of profit everywhere to the same common and univer- 
sal level. 

This movement of capitals is caused primarily by the stand 
of the market-prices, which lift profits above the level of the 
universal average in one place and depress them below it in 
another. We leave out of consideration, for the present, 



244 Capitalist Production. 

mci'cliant's capital. We know from the sudden paroxysms of 
speculation in certain favorite articles that this merchants' 
capital can draw masses of capital from a certain line of busi- 
ness with extraordinary rapidity and throw them with equal 
rapidity into another. But we have nothing to do with mer- 
chants' capital at this place. So far as the sphere of actual 
production is concerned, that is, industries, agriculture, min- 
ing, etc., the transfer of capital from one sphere to another 
offers considerable difficulty, particularly on account of the 
existing fixed capital. Moreover, experience demonstrates 
that, if a certain line of industry, for instance the cotton in- 
dustry, yields extraordinary profits at one period, it suffers 
losses, or makes very little profit, at some other period, so 
that the average profit within a certain cycle of years is pretty 
much the same as in other lines. And capital soon learns to 
take this experience into account. 

What competition does not show is the way in which value 
is determined and the movement of production dominated by 
this determination. It does not show the values that stand 
behind the prices of production and determine them in the 
last instance. Competition does show, on the other hand, the 
following things: 1) The average profits independent of 
the organic composition of capital in the different spheres of 
production, and therefore also independent of the mass of liv- 
ing labor appropriated by any given capital in any particular 
sphere of exploitation. 2) A rise and fall of prices of pro- 
duction as a result of changes in the level of w^ages, a phe- 
nomenon which flatly contradicts at first sight the law of 
value of commodities. 3) The fluctuations of market-prices, 
which reduce the average market-price of commodities in a 
given period of time, not to the market-value , but to a marhet- 
price of production differing considerably from this market- 
value. All these phenomena seem to contradict the deter- 
mination of value by labor-time as much as the fact that 
surplus-value consists of unpaid surplus-labor. Everything 
appears upside down in competition. The existing conforma- 
tion of economic conditions, as seen in reality on the surface 
of things, and consequently in the conceptions which the 



Some After Remarks. 245 

leading human agents of these conditions fonn in trying to 
understand them, are not only different from the internal and 
disguised essence of these conditions, and from the concep- 
tions corresponding to this essence, but actually opposed to 
them, or their reverse. 

Furthermore, as soon as capitalist production has reached 
a certain degree of development, the reduction of the different 
rates of profit of the individual spheres to the level of the 
average rate of profit no longer proceeds solely by virtue of 
the play of attraction and repulsion, by which the market- 
prices attract or repel capital. After the average prices, and 
the market-prices corresponding to them, have become stable 
for a time, the capitalists become conscious of the fact that 
this leveling process balances definite differences. And then 
they allow for these differences in their mutual calculations. 
The differences exist in the consciousness of the capitalists 
and are taken into consideration as fluctuations for which al- 
lowance must be made. 

At the bottom of all conceptions lies that of the average 
profit, to-wit, that capitals of the same magnitude must yield 
the same profits in the same time. This, again, is based on 
the assumption that the capital of each sphere of production 
shares in the total profit squeezed out of the laborers by the to- 
tal social capital in proportion to its magnitude ; or, that every 
individual capital should be regarded merely as a part of the 
total social capital, and every capitalist as a shareholder in 
the total social enterprise, each sharing in the total profit in 
proportion to the magnitude of his share of capital. 

These conceptions sen^e as a basis for the calculations of 
the capitalist, for instance the assumption that a capital which 
is turned over more slowly than another, because its commodi- 
ties require a longer time for their production, or because 
they must be sold in more remote markets, should neverthe- 
less charge the profit it loses in this way and reimburse itself 
by putting up the price. Another idea is that capitals in- 
vested in lines which are exposed to considerable danger, for 
instance in shipping, should be compensated by a raise in 
prices. As soon as capitalist production, and the insurance 



246 Capitalist Production. 

business, are developed, the danger is equalised for all spheres 
of production (see Corbett) ; but the capitals invested in more 
than ordinarily dangerous enterprises have to pay higher insur- 
ance rates and recover them in the prices of their commodi- 
ties. All this amounts in practice to saying that every cir- 
cumstance (and all of them are considered equally necessary 
within certain limits), which renders one line of production 
profitable, and another less, are calculated as legitimate 
grounds for compensation, without requiring the ever renewed 
action of competition to demonstrate the justification of such 
claims. The capitalist simply forgets, or rather he does not 
see, because competition does not show it to him, that all these 
claims for compensation mutually advanced by the capitalists 
in the calculation of the prices of commodities of different 
lines of production repeat in another way the idea that 
all capitalists are entitled, in proportion to the magni- 
tude of their respective capitals, to equal shares of the com- 
mon loot, the total surplus-value. They are rather under the 
impression, seeing that the profit pocketed by them differs 
from the surplus-value appropriated by them, that those 
grounds for compensation do not equalise their participation 
in the total surplus-value, but that they rather create the profit 
itself, which is supposed to originate in an addition to the 
price of their commodities, for w^hich they advance different 
excuses. 

In other respects the statements made in chapter VII con- 
cerning the assumptions of the capitalists as to the source of 
surplus-value apply also in this instance. The present case 
differs a little from those in chapter VII, but only to the ex- 
tent that a saving in cost-price depends on individual ability, 
attention to business, etc., assuming the market-price of com- 
modities and the degree of exploitation of labor to be given. 



PAUT III. 

THE LAW OF THE FALLING TENDENCY OF THE 
KATE OF PROFIT. 



CHAPTER XIIL 

THE THEORY OF THE LAW. 

With a given wage and working day, a certain variable capi- 
tal, for instance of 100, represents a certain number of em- 
ployed laborers. It is the index of this number. For in- 
stance, let 100 p. St. be the wages of 100 laborers for one week. 
If these laborers perform the same amount of necessary as of 
suqilus-labor, in other words, if they work daily as much time 
for themselves as they do for the capitalist, or, in still other 
words, if they require as much time for the reproduction of 
their wages as they do for the production of surplus-value 
for the capitalist, then they would produce a total value of 
200 p.st., and the surplus-value would amount to 100 p.st. 
The rate of surplus-value, -^, would be 100%. But we have 
seen that this rate of surplus-value would express itself in 
considerably different rates of profit, according to the differ- 
ent volumes of constant capitals c and consequently of total 
capitals C. For the rate of profit is calculated by the for- 
mula -^ . 

Take it that the rate of surplus-value is 100%. Now, if 

c = 50, and v = 100, then p' = |f I' or 66^%. 

c = 100, and v = 100, then p' = ^, or 50 %. 

c = 200, and v = 100, then p' = ^^|, or 33^%. 

c = 300, and v = 100, then p' = ^, or 25 %. 

c = 400, and v = 100, then p' = i^, or 20 %. 

247 



248 Capitalist Production. 

In this way, the same rate of surplus-value, with the same 
degree of labor exploitation, would express itself in a falling 
rate of profit, because the material growth of the constant ca])i- 
tal, and consequently of the total capital, implies their growth 
in value, although not in the same proportion. 

If it is furthermore assumed that this gradual change in 
the composition of capital is not confined to some individual 
spheres of production, but occurs more or less in all, or at 
least in the most important ones, so that tliey imply changes in 
the organic average composition of the total capital of a cer- 
tain society, then the gradual and relative growth of the con- 
stant over the variable capital must necessarily lead to a grad- 
ual fall of the average rate of profit, so long as the rate of 
surplus-value, or the intensity of exploitation of labor by capi- 
tal, remain the same. Xow we have seen that it is one of the 
laws of capitalist production that its development carries with 
it a relative decrease of variable as compared with constant 
capital, and consequently! as compared to the total capital, 
which it sets in motion. This is only another way of saying 
that the same number of laborers, the same quantity of labor- 
power set in motion by a variable capital of a given value, con- 
sume in production an ever increasing quantity of means of 
production, such as machinery and all sorts of fixed capital, 
raw and auxiliary materials, and consequently a constant capi- 
tal of ever increasing value and volume, during the same pe- 
riod of time, owing to the peculiar methods of production 
developing within the capitalist system. This progressive rel- 
ative decrease of the variable capital as compared to the con- 
stant, and consequently to the total, capital is identical with 
the progressive higher organic composition of the average so- 
cial capital. It is, in another way, but an expression of the 
progressive development of the productive powers of society, 
which is manifested by the fact that the same number of la- 
borers, in the same time, convert an ever growing quantity of 
raw and auxiliary materials into products, thanks to the grow- 
ing application of machinery and fixed capital in general, so 
that less labor is needed for the production of the same, or of 
more, commodities. This growing value and volume of con- 



The Theory of the Law. 249 

stant capital corTesponds to a progressive cheapening of prod- 
ucts, although the increase in the value of the constant capital 
indicates but imperfectly tlie growth in the actual mass of use- 
values represented by the material of the constant capital. 
Every individual product, taken by itself, contains a smaller 
quantity of labor than the same product did on a lower scale 
of production, in which the capital invested in wages occupies 
a far greater space compared to the capital invested in means 
of production. The hypothetical series placed at the begin- 
ning of this chapter expresses, therefore, the actual tendency 
of capitalist production. This mode of production produces 
a progressive decrease of the variable capital as compared to 
the constant capital, and consequently a continuously rising 
organic composition of the total capital. The immediate re- 
sult of this is that the rate of surplus-value, at the same de- 
gree of labor-exploitation, expresses itself in a continually fall- \y^ 
ing average rate of profit. (We shall see later why this fall 
does not manifest itself in an absolute fonn, but rather as a 
tendency toward a progressive fall.) This progressive tend- 
ency of the average rate of profit to fall is, therefore, but a 
peculiar expression of capitalist production for the fact that 
the social productivity of labor is progressively increasing. 
This is not saying that the rate of profit may not fall tem- 
porarily for other reasons. But it demonstrates at least that 
it is the nature of the capitalist mode of production, and a 
logical necessity of its development, to give expression to the 
average rate of surplus-value by a falling rate of average 
profit. Since the mass of the employed living labor is con- 
tinually on the decline compared to the mass of materialised 
labor incorporated in productively consumed means of pro- 
duction, it follows that that portion of living labor, which is 
unpaid and represents surplus-value, must also be continually 
on the decrease compared to the volume and value of the in- 
vested total capital. Seeing that the proportion of the mass of 
surplus-value to the value of the invested total capital forms >^ 
the rate of profit, this rate must fall continuously. 

Simple as this law appears from the foregoing statements, 
all of political economy has so far tried in vain to discover it, 



250 * Capitalist Production. 

as we shall see later on. The economists sa\v the problem 
and cudgeled their brains in tortuous attempts to interpret it. 
Since this law is of great importance for capitalist produc- 
tion, it may be said to be that mystery whose solution has been 
the goal of the entire political economy since Adam Smith. 
The difference between the various schools since Adam Smith 
consists in their different attempts to solve this riddle. If 
we consider, on the other hand, that political economy up to 
the present has been tinkering wdth the distinction between 
constant and variable capital without ever defining it accu- 
rately; that it never separated surplus-value from profit, and 
never even considered profit in its purely theoretical form, 
that is, separated from its different subdivisions, such as in- 
dustrial profit, commercial profit, interest, ground rent; that 
it never thoroughly analyzed the differences in the organic 
^/composition of capital, and for this reason never thought of 
analyzing the formation of an average rate of profit; if we 
consider all this, we no longer wonder at its failure to solve 
the riddle. 

We intentionally analyze first this law, before we pass on 
to a consideration of the different independent categories into 
which profit is subdivided. The fact that this analysis is 
made independently of the subdivisions of profit, which fall 
to the share of different categories of persons, shows in itself 
that this law, in its general workings, is independent of those 
subdivisions and of the mutual relations of the resulting cate- 
gories of profit. The profit to which we are here referring is 
but another name for surplus-value itself, wdiich is merely ob- 
served in its relation to the total capital, instead of its rela- 
tion to the variable capital from which it arises. The fall 
in the rate of profit therefore expresses the falling relation of 
surplus-value itself to the total capital, and is for this reason 
y independent of any division of this profit among various par- 
ticipants. 

We have seen that a certain stage of capitalist development, 
in which the organic composition of capital, c : v shows the pro- 
portion of 50 : 100, expresses a rate of surplus-value of 100% 
by a rate of profit of 66|%, and that a higher stage, in 



C'' The Theory of the Law. 251 

which c : v shows the proportion 400 : 100, expresses the same 
rate of surplus-value by a rate of profit of only 20%. What 
is true of different successive stages in the same country, is 
also true of different contemporaneous stages of development 
in different countries. In an undeveloped country, in which 
the first-named composition of capital is the rule, the average 
rate of profit would be 665%, while in a country with the 
other, higher, stage of development, the average rate of profit 
would be 20%. 

The difference between two national rates of profit might 
be eliminated, or even reversed, if labor were less productive 
in the less developed country, so that a larger quantity of la- 
bor would be incorporated in a smaller quantity of the same 
commodities, a larger exchange-value represented by a smaller 
use-value, so that the laborer would consume a larger portion 
of his time in the reproduction of his own means of sub- 
sistence, or of their value, and have less time to spare for the 
production of surplus-value, and consequently would perform 
less surplus-labor, so that the rate of ^surplus-value would be 
lower. For instance, if the laborer of the less developed 
country were to work two-thirds of the working day for 
himself, and one-third for the capitalist, then, referring to 
the above illustration, the same labor-power would be paid 
with 133^ and w^ould furnish a surplus of only 66|. A con- 
stant capital of 50 would correspond to a variable capital of 
133^. The rate of surplus-value would then amount to 
133 J : 66| =^50%, and the rate of profit to 183^ : 66f = 
about 36^%. 

Since we have not analysed the different subdivisions of 
profit, so that they do not exist for the present so far as we 
are here concerned, we make the following preliminary re- 
marks merely in order to prevent misunderstanding: It 
would be a mistake to measure the level of the national rate 
of profit by, say, the level of the national rate of interest, 
when comparing countries in different stages of development, 
especially when comparing countries with a developed capi- 
talist production to countries, in which labor has not yet been 
fully subjected to capital, although the laborer may already 



252 Capitalist Production. 

be exploited by the capitalist, as happens, for instance, in 
India, where the ryot manages his farm as an independent 
producer, whose production, strictly so called, is not yet under 
the complete sway of capital, although the usurer may not 
only rob him of his entire surplus-labor by means of interest, 
but also curtail his wages, to use a capitalist term. For the 
interest of such stages comprises all of the profit, and more 
than the profit, instead of merely expressing an aliquot part 
of the produced surplus-value, or profit, as it does in countries 
with a developed capitalist production. On the other hand, 
tlie rate of interest in capitalist countries is overwhelmingly 
determined by conditions (loans granted by usurers to owners 
of large estates who draw ground-rent) which have nothing to 
do with profit, but which merely indicate to what extent usury 
appropriates ground-rent. 

In countries with capitalist production in different stages 
of development, and consequently with capitals of different 
organic composition, a country with a short normal working 
day may have a higher rate of surplus-value (the one factor 
which determines the rate of profit) than a country with a 
long normal working day. In the first place, if the English 
working day of 10 hours, on account of its higher intensity, is 
equal to an Austrian working day of 14 hours, then dividing 
the working day equally in both instances, 5 hours of English 
surplus-labor may represent a greater value on the world- 
market than 7 hours of Austrian surplus-labor. In the sec- 
ond place, a larger portion of the English working day may 
represent surplus-labor than of the Austrian working day. 

The law of the falling tendency of the rate of profit, which 
is the expression of the same, or even of a higher, rate of 
surplus-value, says in so many words : If you take any quan- 
tity of the average social capital, say a capital of 100, you 
will find that an ever larger portion of it is invested in means 
of production, and an ever smaller portion in living labor. 
Since, then, the aggregate mass of the living labor operating 
the means of production decreases in comparison to the value 
of these means of production, it follows that the unpaid labor, 
and that portion of value in which it is expressed, must de- 



The Theory of the Lazv. 253 

cline as compared to the value of the advanced total capital. 
Or, an ever smaller aliquot part of the invested total capital 
is converted into living labor, and this capital absorbs in 
proportion to its magnitude less and less surplus-labor, al- 
though the proportion of the unpaid part of the employed 
labor may simultaneously grow as compared with the paid 
part. The relative decrease of the variable, and the relative 
increase of the constant, capital, while both parts may grow 
absolutely in magnitude, is but another expression for the in- 
creased productivity of labor. 

Let a capital of 100 consist of 80 c -|- 20 v, and let the 20 v 
stand for 20 laborers. Let the rate of surplus-value be 
100%, that is to say, the laborers work one-half of the day 
for themselves and the other half for the capitalist. Now 
take a less developed country, in which a capital of 100 is 
composed of 20 c -j- 80 v, and let these 80 v stand for 80 la- 
borers. But let these laborers work two-thirds of the day for 
themselves, and only one-third for the capitalists. Assum- 
ing all other things to be equal, the laborers in the first case 
will produce a value of 40, while those in the second case will 
produce a value of 120. The first capital produces 80 c -[- 
20 V + 20 s = 120 ; rate of profit 20%. The second capital 
produces 20 c + 80 v + 40 s = 140 ; rate of profit 40%. In 
other words, the rate of profit in the second case is double 
that of the first case, and yet the rate of surplus-value in the 
first case is 100%, while it is only 50% in the second case. 
But a capital of the same magnitude appropriates in the first 
case the surplus-labor of only 20 laborers, while it appropri- 
ates that of 80 laborers in the second case. 

The law of the falling tendency of the rate of profit, or of 
the relative decline of the appropriated surplus-labor com- 
pared to the mass of materialised labor set in motion by liv- 
ing labor does not argue in any way against the fact that the 
absolute mass of the employed and exploited labor set in 
motion by the social capital, and consequently the absolute 
mass of the surplus-labor appropriated by it, may grow. "Nor 
does it argue against the fact that the capitals controlled by 
individual capitalists may dispose of a growing mass of labor 



254 Capitalist Production. 

and surplus-labor, even though the number of the laborers 
employed by them may not grow. 

Take for illustration's sake a certain population of working 
people, for instance, two millions. Assume, furthermore, 
that the length and intensity of the average working day, and 
the level of wages, and thereby the proportion between neces- 
sary and surplus-labor, are given. In that case the aggregate 
labor of these two millions, and their surplus-labor expressed 
in surplus-value, represent always the same magnitude of 
values. But with the growth of the mass of the constant 
(fixed and circulating) capital, which this labor manipulates, 
the proportion of this produced quantity of values declines as 
compared to the value of this total capital. And the value of 
this capital grows with its mass, although not in the same 
proportion. This proportion, and consequently the rate of 
profit, falls in spite of the fact that the same mass of living 
labor is controlled as before, and the same amount of surplus- 
labor absorbed by the capital. This proportion changes, not 
because the mass of living labor decreases, but because the 
mass of the materialised labor set in motion by living labor in- 
creases. It is a T^plativ^jjpprpncie; rinf nn nl^grtlntp nnr>^ and 
has really nothing to do with the absolute magnitude of the 
labor and surplus-labor set in motion. The fall of the rate 
of profit is not due to an absolute, but only to a relative de- 
crease of the variable part of the total capital, that is, its de- 
crease as compared with the constant part. 

The same thing which applies to any given mass of labor 
and surplus-labor, applies also to a growing number of la- 
borers, and thus under the above assumptions, to any growing 
mass of the controlled labor in general and to its unpaid part, 
the surplus-labor, in particular. If the laboring population 
increases from two million to three million, if, furthermore, 
the variable capital invested in wages also rises to three mil- 
lion from its former amount of two million, while the cf>n- 
stant capital rises from four million to fifteen million, then 
the mass of surplus-labor, and of surplus-value, under the 
above assumption of a constant w^orking day and a constant rate 
of surplus-value, rises by 50%, that is, from two million to 



The Theory of the Lazu. 255 

three million. jSTevertheless, in spite of this growth in the 
absolute mass of surplus-labor and surplus-value by 50%, the 
proportion of the variable to the constant capital would fall 
from 2 : 4 to 3:15, and the proportion of the surplus-value to 
the total capital, expressed in millions, would be 

L 4c + 2v + 2s; C=. 6, p' = 33i%. 
11. 15 c + 3 V + 3 s ; C = 18, p' = 16f %. 

While the mass of surplus-value has increased by one-half, 
the rate of profit h^s fallen by one-half. However, the profit 
is only_ thp puTpl'T^^^^^^w^ calculated on the total socialcapital,' 
so that its absolute magnitude, socially considered, is the same 
as the absolute magnitude ot.the surplus-value. In this case, 
the absolute magnitude of the profit would have grown by 
50%, in spite of its enormous relative decrease compared to 
the advanced total capital, or in spite of the enormous fall of 
the average rate of profit. We see, then, that in spite of the 
progressive fall of the rate of profit, there may be an absolute 
increase of the number of laborers employed by capital, an 
absolute increase of the labor set in motion by it, an absolute 
increase of the mass of surplus-labor absorbed, a resulting ab- 
solute increase of the produced surplus-value, and conse- 
quently an absolute increase in the mass of the produced 
profit. And this increase may be progressive. And it may 
not only be so. On the basis of capitalist production, it must 
be so, aside from temporary fluctuations. 

The capitalist process of production is essentially a process 
of accumulation. We have shown that the mass^j^f values, 
wliicli must be simply reproduced and maintained, increases 
progressiv'ely with-H-ie-drevelopment of capitalist production to 
the extent that the productivity of labor grows, even if the 
employed labor-power should remain constant. But the de- 
veTopmeiil of social productivity carries with it a still greater 
increase of the produced use-values, of which the means of 
production form a part. And the additional labor^jwlLQse ap- 
]2TOpria tion reconve rts this add itional value_int,o capital, does 
not depend ^n the value, b ut_.mL-ili£LJiiaas, of these_means of 
production (including the jneans of subsistence), because the 
laBorer^mthe productive process is not operating with the 



256 Capitalist Production. 

exchange-value, but with the use-value of the means of ]-)yo- 
duction. Accumulation itself, however, and the concentra- 
tion of capital that goes with it, is a material means of in- 
creasing the productive power. Now, this growth of the 
means of production includes the increase of the laboring 
population, the creation of a laboring population which 
corresponds to the surplus-capital or even exceeds its 
general requirements, leading to an overpopulation of 
working people. A momentary excess of the surplus-cap- 
ital over the laboring population controlled by it would have 
a twofold effect. It would, on the one hand, mitigate the 
conditions, which decimate the offspring of the laboring class 
and would facilitate marriages among them, by raising wages. 
This would tend to increase the laboring population. On the 
other hand, it would employ the methods by which relative 
surplus-value is created (introduction and improvement of 
machinery) and thereby create still more rapidly an artificial 
relative overpopulation, wdiich in its turn would be a hothouse 
for the actual propagation of its numbers, since under capi- 
talist production poverty propagates its kind. The nature of 
the cajDitalist process of accumulation, which process is but 
an element in the capitalist process of production, implies as 
a matter of course that the increased niass of means of jrro- 
duxition^, whi€iuis_J;a_bie_converted into capital, must always 
find on hand a corresponding increase, or even an excess, of 
laboring people for_exploitation. The progress of the process 
of production and accumulation must, therefore, be accom- 
panied by a gi'owth of tlie mass of available and appropriated 
surplus-labor, and consequently by a growth -£»f--Uie__absolute 
Qiaas__of_profit__ap propriated by the social ^ capital. But the 
same law^s of production and accumulation increase the vol- 
ume and value of the constant capital in a more rapid progres- 
sion than those of the variable capital invested in living labor. 
The same laws, then, produce for the social capital an increase 
in the absolute mass of profit and a falling rate of profit. 

We leave out of consideration the fact that the same amount 
of values represents a progressively increasing mass of use-_ 
values and enjoyments to the extent that the capitalist process 



I 



The Theory of the Law. 257 

of production carries with it a development of the productive 
power of social labor, a multiplication of the lines of pro- 
duction, and an increase of products. 

The development of capitalist production and accumula- 
tion lifts the processes of labor to a higher scale and gives 
them greater dimensions, which implj larger investments of 
capital for each individual establishment. A growing con- 
centration of capitals (accompanied by a growing number of 
capitalists, though not to the same extent) is therefore one of 
the material requirements of capitalist production as well as 
one of the results produced by it. Hand in hand with it, and 
mutually interacting, goes a pro gressive exp xQpriation of the 
more or less direct producers. It is, then, a matter of course 
foFtHe capitalists that they should control increasing armies 
of laborers (no matter how much the variable capital may 
relativeTy" decrease in comparison to the constant capital), 
and that the mass of surplus-value, and of profit, appropriated 
by them, should grow simultaneously with the fall of the rate 
of profit, and in spite of it. The same causes which concen- 
trate masses of laborers under the control of capitalists, are 
precisely those which also swell the mass of fixed capital, 
aiixiliary_.and_ raw materials inlr~grmving proportion as coni- 
pa red t o the mass of the employed living labor. 

It requires but a passing notice at this point, that, given 
a certain laboring population, the mass of surplus-value, and 
therefore the absolute mass of profit, must grow if the rate of 
surplus-value increases by a prolongation or intensification of 
the working day, or by a lowering of the value of wages 
through a development of the productive power of labor, and 
must do so in spite of the relative decrease of the variable 
capital compared to the constant. 

The same development of the productive power of social 
labor, the same laws, which express themselves in a relative 
fall of the variable as compared to the total capital and in 
a correspondingly hastened accumulation, while this accumu- 
lation in its turn becomes the starting point of a further de- 
velopment of the productive power and of a further relative 
fall of the variable capital, this same development manifests 

Q 



258 Capitalist Production. 

itself, aside from temporary fluctuations, by a growing in- 
crease of the employed total labor-power, a growing increase 
of tbe absolute mass of surplus-value, and consequently of 
profits. 

jSIow, in what form must this two-faced law with the same 
causes for a decrease of the rate of profits and a simultaneous 
increase of the absolute mass of profits show itself? A law 
based on the fact that under certain conditions the appropri- 
ated mass of surplus-labor, and consequently of surplus-value, 
increases, and that, so far as the total capital is concerned, or 
the individual capital as an aliquot part of the total capital, 
profit and surplus-value are identical magnitudes? 

Take that aliquot part of capital w^hich is the basis of our 
calculation of the rate of profit, for instance 100. These 100 
illustrate the average composition of the total capital, say 
80 c -f- 20 V. We have seen in the second part of this vol- 
ume, that the average rate of profit is determined, not by the 
particular composition of individual capital, but by the aver- 
age composition of social capital. If the variable capital de- 
creases as compared to the constant, or to the total capital, 
then the rate of profit, or the relative magnitude of surplus- 
value calculated on the total capital, falls even though the 
intensity of exploitation were to remain the same, or even to 
increase. But it is not this relative magnitude alone which 
falls. The magnitude of the surplus-value or profit absorbed 
by the total capital of 100 also falls absolutely. At a rate 
of surplus-value of 100%, a capital of 60 -\- 40 produces a 
mass of surplus-value and profit amounting to 40 ; a capital 
of YO c + 30 V a mass of profit of 30 ; a capital of 80 c -j- 20 v 
produces only 20 of profit. This fall refers to the mass of 
surplus-value, and thus of profit, and is due to the fact that 
the total capital of 100, with the same intensity of labor ex- 
ploitation, employs less living labor, sets in motion less labor- 
power, and therefore produces less surplus-value. Taking 
any aliquot part of the social capital, that is, of capital of 
average composition, as a standard by which to measure sur- 
plus-value — and this is done in all calculations of profit — 
a relative fall of surplus-value is identical with its absolute 



J 



The Theory of the Lazu. 259 

fall. -The rate of profit sinks in the above cases from 40% 
to 30% and 20%, because the mass of surplus-value, and of 
profit, produced by the same capital falls absolutely from 40 
to 30 and 20. Since the magnitude of the value of capital, 
by which the surplus-value is measured, is given as 100, a 
fall in the proportion of surplus-value to this given magnitude 
can be only another expression for the fact that surplus-value 
and pro^t^ decrease absolutely. This is, of course, a tautol- 
ogy. But we have demonstrated that the nature of the cap- 
italist process of production brings about this decrease. 

On the other hand, the same causes which bring about an 
absolute decrease of surplus-value and profit on a given cap- 
ital, and consequently in the percentage of the rate of profit, 
produce an increase of the absolute mass of surplus-value and 
profit appropriated by the total capital (that is, by the capi- 
talists as a whole). How can this be explained, and what is 
the only way in which this can be explained, or what are the 
conditions on which this apparent contradiction is based? 

While any aliquot part, any 100 of the social capital, any 
100 of average social composition, is a given magnitude, for 
which a fall in the rate of profit implies a fall in the absolute 
magnitude of profit, just because the capital which serves 
as a standard of measurement is a constant magnitude, the 
magnitude of the social capital, on the other hand, as well as 
that of the capital in the hands of individual capitalists, is 
v ariab le^ and in keeping with our assumptions it must vary in- 
versely to the decrease of its variable portion. 

In our former illustration, when the percentage of composi- 
tion was 60 c -|- 40 v, the corresponding surplus-value and 
profit was 40, and the rate of profit 40%. Take it that the 
total capital in this stage of composition was one million. In 
that case the total surplus-value, and total profit, amounted to 
400,000. Now, if the composition changes later to 80 c -[- 
20 V, while the degree of labor exploitation remains the same, 
then the surplus-value and profit for each 100 is 20. But as 
we have demonstrated that the absolute mass of surplus-value 
and profit increases in spite of the fall of the rate of profit, 
in spite of the decrease in the production of surplus-value by 



26o Capitalist Production. 

a capital of 100, that it grows, say, from 400,000 to 440,000, 
there is no other way in which this could be brought about 
than by a growtli of the total capital to 2,200,000 to the ex- 
tent that this new composition developed. The mass of the 
total capital set in motion has risen by 220%, while the rate 
of profit has fallen by 50%. If the total capital had only 
been doubled, it could have produced no more surplus-value 
and profit with a rate of profit of 20% than the old capital 
of 1,000,000 at a rate of 40%. If it had grown to less than 
twice its old size, it would have produced less surplus-value 
or profit than the old capital of 1,000,000, which, with its 
former composition, would have had to grow from 1,000,000 
to no more than 1,100,000, in order to raise its surplus-value 
from 400,000 to 440,000. 

We meet here once more the previously analysed law, that 
the relative decrease of the variable capital, or the develoj>^ 
ment of tlie productive "p6"sver of labor, requires an increasing 
mass of total ' nital for the purpose of setting in motion the 
same quautitj i " labor-power and absorbing the same quan- 
tity of surplu ' ' /. Consequently the possibility of a rela- 
tive surplus of laboring peojjle develops to the extent that cap- 
italist production advances, not because the productive power 
of social labor decreases, but because it increases. Relative 
overpopulation does not arise out of an absolute disproportion 
between labor and means of subsistence, or of means for the 
production of these means of existence, but out of a dispro- 
portion due to the capitalist exploitation of labor, a dispro- 
portion between the growing increase of capital and its rela- 
tively decreasing demand for an increase of population. 

A fall in the rate of profit by 50% means its fall by one- 
half. If the mass of profit is to remain the same, the capital 
must be doubled. In order that the mass of profit made at 
a declining rate of profit may remain the same as before, the 
multiplier indicating the growth of the total capital must U© 
equal to the divisor indicating the fall of the rate of profit. 
If the rate of profit falls from 40 to 20, the total capital must 
rise at the rate of 20 to 40, in order that the result may re- 
main the same. If the rate of profit had fallen from 40 to 8^ 



i 



The Theory of the Laiv. 261 

the capital would have to increase at the rate of 8 to 40, or 
five times its value. A capital of 1,000,000 at a rate of 40% 
produces 400,000, and a capital of 5,000,000 at a rate of 8% 
likewise produces 400,000. This applies, so long as the re- 
sult is to remain the same. But if the result is to he higher, 
then the capital must grow at a faster rate than the rate of 
profit falls. In other words, in order that the variable por- 
tion of the total capital may not only remain the same, but 
may also increase absohitely, although its percentage in the 
total capital falls, the ~total capital must grow at a higher 
rate than the percentage of the variable capital falls. It 
must grow at such a rate that it requires in its new compo- 
sition not merely the same old variable capital, but mor€ than 
it^or the purchase of labor-power. If the variable portion 
oTacapital of 100 falls from 40 to 20, the total capital must 
rise higher than 200, in order to be able to employ a larger 
variable capital than 40. 

Even if the mass of the exploited laboriijf: )population were 
to remain constant, and only the length • ' intensity of the 
working day to increase, the mass of invested capital 

would have to increase, since it must rise for the mere pur- 
pose of employing the same mass of labor under the old condi- 
tions of exploitation as soon as the composition of capital va- 
ries. 

Tn short, the same development of the social productivity 
oLkbor expresses itself in the course of capitalist production 
on the one hand in a tendency to a progressive fall of the rate 
of profit, and on the other hand in a progressive increase of 
the absolute mass of the appropriated surplus-value, or profit ; 
so that on the whole a relative decrease of variable capital and 
profit is accompanied by an absolute increase of both. This 
twofold effect, as we have seen, can express itself only in a 
growth of the total capital at a ratio more rapid than that 
ex2)res?CM_l by th^ fall in the rate of profit. In order that an 
absolutely increased variable capital may be employed in a 
capital of higher composition, that is, a capital in which the 
constant capital has relatively increased still more than the 
variable, the total capital must not only grow in proportion 



262 Capitalist Production. 

to its higher composition, but even still more rapidly. It 
follows, then, that an ever larger quantity of capital is re- 
quired in order to employ the same, and still more an in- 
creased amount of labor-power, to tlie extent that the capital- 
ist mode of production develojDS. The increasing productiv- 
ity of labor thus creates necessarily and permanently an 
apparent overpopulation of laboring people. If the variable 
capital forms only one-sixth of the total capital instead of one- 
half, as before, then the total capital must be trebled in order 
,to employ the same amount of labor-power. And if the 
labor-power to be employed is doubled, then the total capital 
must be multiplied by six. 

Political economy has so far been unable to explain the law 
of the falling tendency of the rate of profit. So it pointed as 
a consolation to the increasing mass of profit, tlie increase 
in the absolute magnitude of profit for the individual capital- 
ist as well as for the social capital, but even this consolation 
was based on mere commonplaces and probabilities. 

It is simply a tautology to say that the mass of profit is 
determined by two factors, namely first the rate of profit, and 
secondly by the mass of capital invested at this rate. It is 
therefore but a corollary of this tautology to say that there is 
a possibility for the increase of the mass of profit even though 
the rate of profit may fall at the same time. This does not 
help us to get one step farther, since there is also a possibility 
that the capital may increase without resulting in an in- 
crease of the mass of profit, and that it may even increase 
while the mass of profit is already falling. For 100 at 25% 
make 25, while 400 at 5% make only 20.^^ But if the same 

^ " We should also expect that, however the rate of the profits of stock might 
diminish in consequence of the accumulation of capital on the land and the rise 
of wages, yet the aggregate amount of profits would increase. Thus, supposing 
that, with repeated accumulations of 100,000 p. St., the rate of profits should fall 
from 20 to 19, to 18, to 17%, a constantly diminishing rate; we should expect 
that the whole amount of profits received by those successive owners of capital 
would be always progressive; that it would be greater when the capital was 200,000 
p. St., than when 100,000 p.st. ; still greater when 300,000 p. St.; and so on, increas- 
ing, though at a diminishing rate, with every increase of capital. This progression, 
however, is only true for a certain time; thus 19% on 200,000 p.st. is more than 
20 on 100,000 p.st.; again 18% on 300,000 p.st. is more than 19% on 200,000 p.st.; 
but after capital has accumulated to a large amount, and profits have fallen, the 
further accumulation diminishes the aggregate of profits. Thus, suppose the ac 



The Theory of the Law. 263' 

causes, which bring about a fall in the rate of profit, promote 
the accumulatioii^that is, the formation of additional capital, 
and if each additional capital employs additional labor and 
produces additional surplus-value ; when, on the other hand, 
the" mere fall in the rate of profit implies the fact that the 
constant capital, and with it the total old capital, have in- 
creased, then this process ceases to be mysterious. We shall 
see^TaTe'r, to what falsifications of calculations some people 
have recourse in order to deny the possibility of an increase 
in the mass of profits while the rate of profits is simul- 
taneously decreasing. 

We have shown that the same causes, which bring about a 
tendency of the average rate of profits to fall, necessitate also 
an accelerated accumulation of capital and consequently an 
^increase in the absolute magnUude, or total mass^ j)f .llifi sur- 
plusjabor (surplus-value, profit) appropriated by it. Just 
as everything is reversed in competition, and thus in the con- 
sciousness of its agents, so is also this law, this internal and 
necessary connection between two apparent contradictions. 
It is evident, within the proportions indicated above, that a 
capitalist disposing of a large capital will receive a larger 
mass of profits than a small capitalist making apparently high 
profits. A superficial observation of competition shows fur- 
thermore that under certain circumstances, when the greater 
capitalist Avishes to make more room for himself on the market 
by pushing aside the smaller ones, as happens in times of 
commercial crises, he makes a practical use of this, that is, he 
lowers his rate of profit intentionally in order to crowd the 
smaller ones off the field. Particularly merchant's capital, as 
we shall show at length later on, shows symptoms, which seem 
to attribute the fall in profits to an expansion of the business, 

cumulation should be 1,000,000 p.st., and the profits 7%, the whole amount of 
profits will be 70,000 p.st.; now if an addition of 100,000 p.st. capital be made 
to the million, and profits should fall to 6%, 66,000 p.st. or a diminution of 4,000 
p.st. will be received by the owners of the stock, although the whole amount of 
stock will be increased from 1,000,000 p.st. to 1,100,000 p.st." — Ricardo, Political 
Economy, chapter \^II (in Works, McCulloch Edition, 1852, page 68). — The fact 
is, that the assumption has here been made that the capital increases from 1,000,000 
to 1,100,000, that is, by 10%, while the rate of profit falls from 7 to 6%, or 
14 2/7%. Hence those tears! 



264 Capitalist Production. 

and thus of capital. We shall later on give a scientific ex- 
pression for this false conception. Similar superficial obser- 
vations result from the comparison of rates of profit made in 
some particular lines of business, according to whether they 
are subject to free competition or to monopoly. The utterly 
shallow conception existing in the heads of the agents of com- 
petition is found in our Koscher, namely the idea that a re- 
duction of the rate of profits is " more prudent and humane." 
The fall in the rate of profit is in this case attributed to an 
increase of capital, it appears as a consequence of this in- 
crease, and of the resultant calculation of the capitalist that 
the mass of profits to be pocketed by him will be greater at a 
smaller rate of profits. This entire conception (with the ex- 
ception of that of Adam Smith, which we shall mention later) 
rests on the utter misapprehension of what the average rate 
of profit represents and on the crude idea that prices are in- 
deed determined by adding a more or less arbitrary amount 
pf profit to the actual value of the commodities. Crude as 
these ideas are, they arise necessarily out of the inverted as- 
pect which the immanent laws of capitalist production repre- 
sent under competition. 

The law that the fall in the rate of profit due to the de- 
velopment of the productive powers is accompanied by an in- 
crease in the mass of profit expresses itself furthermore in 
the fact that a fall in the price of commodities produced by 
capital is accompanied by a relative increase of the masses of 
profit contained in them and realised by their sale. 

Since the development of the productive powers and the 
higher composition of capital corresponding to it set in motion 
an ever increasing quantity of means of production with an 
ever decreasing quantity of labor, every aliquot part of the 
total product, every single commodity, or every particular 
quantity of commodities in the total mass of products absorbs 
less living labor, and also contains less materialised labor, both 
as to the wear and tear of fixed capital and to the raw and 
auxiliary materials consumed. Every single commodity, 
then, contains a smaller amount of labor materialised in means 
of production and of labor newly added during production. 



The Theory of the Lazv. 265 

Hence tlie ;^rice_.of..„ the individual commodity falls. The 
mass of profits contained in the individual commodities may 
nevertheless increase, if the rate of the ahsolute or relative 

surplus-value grows. The commodity then ^contains ^less 

newly added laboiy-but its unpaid portion grows over its paid 
portion. How^ever, this is the case only within certain limits. 
In the course of the development of production, with the 
enormously growing absolute decrease of the amount of living 
labor newly embodied in the individual commodities, the mass 
of unpaid labor contained in them will likewise decrease ab- 
solutely^ however much it may have grown as compared to 
their paid portion. The mass of profit on each individual 
commodity will decrease considerably with the development 
of the productive power of labor, in spite of the increase of 
the rate of sui-plus-value. And this reduction, the same as 
the fall in the rate of profits, is only delayed by the cheap- 
ening of the elements of constant capital and the other cir- 
cumstances mentioned in the first part of this volume, which 
increase the rate of profit at a stable, or even falling, rate of 
surplus-value. '"~~— -~ 

To say that the price of the individual commodities falls, 
which together make up the total product of the capital, is 
simply to say that a certain cjiiantity of labor is realised in 
a larger quantity of commodities, so that each individual com- 
modity contains less labor than before. This is the case even 
if the price of one of the parts of constant capital, such as 
raw material, etc., should rise. With the exception of a few 
cases (for instance, if the productive power of labor cheapens 
all the elements of constant and variable capital uniformly) 
the rate of profit will fall in spite of the increased rate of sur- 
plus-value, 1), because even a larger unpaid portion of the 
smaller total amount of newly added labor is smaller than 
a smaller aliquot portion of unpaid labor was in the former 
large amount of total labor, and 2), because the higher com- 
position of the capital is expressed through the individual 
commodity by the fact that that portion of its value, in which 
newly added labor is materialised, decreases as compared to 
that portion of its value, which represents raw material, aux- 



266 Capitalist Production. 

iliary material^ and wear and tear of fixed capital. This 
change in the proportions of the various component parts of 
the price of the individual commodities, the decrease of that 
portion of their price, in which newly added labor is materi- 
alised, and the increase of that portion, in which formerly ma- 
terialised labor is represented, is that form which expresses 
through the price of the individual commodities the de- 
crease of the variable capital as compared to the constant cap- 
ital. To the extent that this decrease is absolute for a cer- 
tain amount of capital, for instance 100, it is also absolute 
for every individual commodity as an aliquot part of the re- 
produced capital. However, the rate of profit, if calculated 
merely on the elements of the price of the individual com- 
modity, would be different from what it actually is. The 
reason for this is as follows : 

[The rate of profit is calculated on the total capital in- 
vested, but only for a definite time, in fact, for one year. 
The rate of profit is the proportion of the surplus-value, or 
profit, made and realised on the total capital and calculated in 
percentages. It is, therefore, not necessarily equal to a rate 
of profit, whose jcalculation was not based on one year, but on 
the period of turn-over of the invested capital. These two 
things do not coincide, unless the capital is turned over ex- 
actly in one year. 

On the other hand, the profit made in the course of one 
year is merely the sum of the profits on the commodities pro- 
duced and sold during the same year. ISTow, if we calculate 
the profit on the cost-price of the commodities, we obtain 
a rate of profit = -^, in which p stands for the profit realised 
during one year, and k for the sum of the cost-prices of the 
commodities produced and sold during that year. It is e^d- 
dent that this rate of profit -^ will not coincide with the actual 
rate of profit — , or mass of profit divided by the total capital, 
unless k = C, that is, unless the capital is turned over in 
exactly one year. 

Let us take three different conditions of some industrial 
capital. 



The Theory of the Law. '^67 

I. — A capital of 8,000 p.st. produces and sells annually 
5,000 pieces of commodities, at 30 sh, per piece, making an 
annual turn-over of 7,500 p.st. It makes a profit of 10 sh. 
on each piece, or 2,500 p.st. per year. Every piece, then, 
contains 20 sh. of capital advance, and 10 sh. of profit, so 
that the rate of profit per piece is 5-^ = 50%. The turned- 
over sum of 7,500 p.st. contains 5,000 p.st. of advanced capi- 
tal and 2,500 p.st. of profits. Eate of profit for one turn- 
over, -^, likewise 50%. But the rate of profit calculated on 
the total capital is the rate of profit -J- =|f|^ = 31|%. 

II. — Let the capital increase to 10,000 p.st. Owing to an 
increased productivity of labor, let it be enabled to produce an- 
nually 10,000 pieces of commodities at a cost-price of 20 sh. 
per piece. Let these commodities be sold at a profit of 4 sh., 
in other words, at 24 sh. per piece. In that case the price of 
the annual product is 12,000 p.st., of which 10,000 p.st. is 
advanced capital and 2,000 p.st. profits. The rate of profit 
"k" is T7 per piece and "if^ooo" ^^^ ^^^^ annual turn-over, or in 
both cases =20%. And since the total capital is equal to 
the sum of the cost-prices, namely 10,000 p.st., it follows that 
-^, the actual rate of profit, is in this case also 20%. 

III. — Let the capital increase to 15,000 p.st., owing to a 
further gTowth of the productive i')ower of labor, and let it 
produce annually 30,000 pieces of commodities at a cost- 
price of 13 sh. per piece, each piece being sold at a profit of 
2 sh., or at 15 sh. per piece. The annual turn-over amounts 
in that case to 30,000 X 15 sh. =, 22,500 p.st., of which 
19,500 are advanced capital and 3,000 p.st. profits. The rate 
of profit ^ is then y^ = -J^^ = 15y%%. But the actual 

rate of profit c" ^Tsooo" ^^ 20%. 

We see, then, that only in case II, where the turned-over 
capital-value is equal to the total capital, is the rate of profit 
per piece, or per total amount turn-over, the same as the rate 
of profit calculated on the total capital. In case I, where 
the amount of the turn-over is smaller than the total capital, 
the rate of profit calculated on the cost-price of the commodi- 
ties is higher. In case III, w^here the total capital is smaller 



268 Capitalist Production. 

than the amount of the turn-over, the rate of profit calculated 
on the cost-price of commodities is smaller than the actual 
rate calculated on the total capital. This is a general rule. 

In commercial practice the turn-over is generally calcu- 
lated inaccurately. It is assumed that the capital has been 
turned over once, as soon as the sum of the realised commod- 
ity-prices equals the sum of the invested total capital. But 
the capital can complete one whole turn-over only in tlie case 
that the sum of the cost-prices of the realised commodities 
equals the sum of the total capital. — F. E.] 

This demonstrates once more how important it is under the 
capitalist mode of jDroduction that the individual commodities 
or the commodity-product of a certain period should not be 
considered as isolated by themselves, as mere commodities, 
but ^s jDroducts of advanced capital and in their relation 
to the totaTjeapiEil^^Ji^hieh produces them. "^ 

Although the rate of profit must be calculated by measuring 
the mass of the produced and realised surplus-value by the 
consumed portion of capital reappearing in the commodities 
as well as by the sum of this portion plus that portion of 
capital which, though not consumed, is employed and con- 
tinues to serve in production, the mass of profit cannot be 
equal to anything but the mass of profit, or surplus-value, 
contained in the commodities themselves and to be realised by 
their sale. 

If the productivity of industry increases, the prices of the 
individual commodities fall. There is less paid and unpaid 
labor contained in them. Let the same labor produce, say, 
thrice its former product. Then the individual product re- 
quires two-thirds less labor. And since the profit can con- 
stitute but a portion of the amount of labor congealed in the 
individual commodities, the mass of profit in the individual 
commodities must decrease. And this must hold good, within 
certain limits, even if the rate of surplus-value should rise. 
In any case, the mass of profits on the total product does not 
fall below the original mass of profits so long as the capital 
employs the same number of laborers at the same degree of 
exploitation. (This may also take place, if fewer laborers 



The Theory of the Laiv. 269 

are employed at a higher rate of exploitation.) For to the 
same extent that the mass of profit on the individual product 
-rtecreaSes^oes the number of products increase. The mass of 
profits remains the same, only it is distributed differently 
over the total amount of commodities. ISTor does this alter the 
division of the amount of value created by newly added labor 
between the laborers and capitalists. The mass of profit can- 
not increase^ so long as the same amount of labor is employed, 
uliless the unpaid surplus-labor increases, or, supposing the 
iTifensity of exploitation to remain the same, unless the num- 
ber of laborers grows. Or, both of these causes may, of 
course, combine to produce this result. In all these cases, 
which, however, according to our assumption, presuppose an 
increase of the constant capital as compared to the variable 
and an increase in the magnitude of the total capital, the in- 
dividual commodity contains a smaller mass of profit and the 
rate of profit falls even if it is calculated on the individual 
commodity. A given quantity of additional labor is ma- 
terialised in a lai'ger quantity of commodities. The price of 
the individual commodities falls. Abstractly speaking, the 
rate of profit may remain the same, even though the price of 
the individual commodity may fall as a result of an increase 
in the productivity of labor and a simultaneous increase in 
the number of these cheaper commodities, for instance, if the 
increase in the productivity of labor extended its effects uni- 
formly and simultaneously to all the elements of the commodi- 
ties, so that the total price of the commodities would fall in 
the same proportion in which the productivity of labor would 
increase, while on the other hand the mutual relations of the 
different elements of the price of commodities would remain 
the same. The rate of profit might even rise, if a rise in the 
rate of surplus-value were accompanied by a considerable re- 
duction in the value of the elements of constant, and par- 
ticularly of fixed, capital. But in reality, as we have seen, 
the rate of profit will fall in the long run. In any case, a 
fall in the price of any individual commodity does not by it^- 
self give a clue to the rate of profit. Everything depends on 
the magnitude of the total capital invested in its production. 



270 Capitalist Production. 

For instance, if the price of one yard of fabric falls from 3 
sh. to If sh. ; if we know that it contained before this reduc- 
tion in price Ij sh, worth of constant capital, yam, etc., § sh. 
wages, and ^ sh. profit, while it contains after this reduction 
1 sh. of constant capital, ^ sh. of wages, and ^ sh. of profit, 
we cannot tell whether the rate of profit has remained the 
same or not. This depends on the question, whether the ad- 
vanced total capital has increased, and how much, and how 
many yards of fabric more it produces in a given time. 

This phenomenon arising from the nature of the capitalist 
mode of production, namely, that an increase in the produc- 
tivity of labor implies a fall in the price of the individual 
commodity, or of a certain mass of commodities, an increase 
in the number of commodities, a reduction of the mass of 
profit in the individual commodity and of the rate of profit 
on the aggTegate of commodities, an increase of the mass of 
profit in the total quantity of commodities, this phenomenon 
shows itself on the surface only in a reduction of the mass of 
profit in the individual commodities, in a fall of their prices, 
in an increase of the mass of profits in the augmented number 
of commodities as a whole, which have been produced by the 
total capital of society or by that of the individual capitalist. 
It is then imagined that the capitalist adds less profits to the 
price of the individual commodities on his own free volition 
and makes up for it by the returns on a greater number of 
commodities produced by him. This conception rests upon 
the idea of profit upon alienation, which in its turn is deduced 
from the ideas of merchant's capital. 

We have seen previously, in parts four and seven of Book 
I, that the growth in the mass of commodities resulting from 
the productivity of labor and the consequent cheapening of 
the commodities as such (unless these commodities become de- 
termining elements in the price of labor-power) do not affect 
the proportion between paid and unpaid labor in the indi- 
vidual commodities, in spite of the fall in price. 

Since everything appears inverted under competition, the 
individual capitalist may imagine: 1) That he is reducing 
his profit on the individual commodity by cutting its price, 



The Theory of the Law. 271 

but still making a greater profit on account of the larger quan- 
tity of commodities which he is selling; 2) that he is fixing 
the price of the individual commodities and determining the 
price of the total product by multiplication, while the original 
process is really one of division (see Book I, chapter XII) 
and the multiplication is correct only in a secondary way, 
being based on that division. The vulgar economist does 
practically no more than to translate the queer concepts of 
the capitalists, who are in the thralls of competition, into a 
more theoretical and generalising language and to attempt a 
vindication of the correctness of those conceptions. 

Practically, a fall in the prices of commodities and a rise 
in the mass of profits contained in the augmented mass of these 
cheapened commodities is but another expression for the law 
of the falling rate of profit with a simultaneous increase in 
the mass of profits. 

The analysis of the extent to which a falling rate of profit 
may coincide with rising prices does not belong in this chap- 
ter any more than that of the point previously discussed in 
volume I, chapter XII, concerning relative surplus-value. A 
capitalist working with improved methods of production that 
have not yet become general sells below the market-price, but 
above his individual price of production. In tliis way his 
rate of profit rises until competition levels it down. During 
this leveling period the second requisite puts in its appear- 
ance, namely the expansion of the invested capital. Accord- 
ing to the degree of this expansion the capitalist will be en- 
abled to employ a part of his former laborers under the new 
conditions, and eventually all of them or more, in other words, 
he will be enabled to produce the same or a greater mass of 
profits. 



272 Capitalist Production. 



CHAPTER XIV. 

COrifTERACTIlSrG CAUSES. 

If we consider the enormous development of the productive 
powers of labor, even comparing but the last 30 years with all 
former periods ; if we consider in particular the enormous 
mass of fixed capital, aside from machinery in the strict mean- 
ing of the term, passing into the process of social production 
as a whole, then the difficulty, which has liitherto troubled the 
vulgar economists, namely that of finding an explanation for 
the falling rate of profit, gives way to its opposite, namely to 
the question; How is it that this fall is not gi'eater and more 
rapid ? There must be some counteracting influences at work, 
which thwart and annul the effects of this general law, leav- 
ing to it merely the character of a tendency. For this reason 
we have referred to the fall of the average rate of profit as a 
tendency to fall. 

The following are the general counterbalancing causes : 

I. Raising the Intensify of Exploitation. 
The rate at which labor is exploited, the appropriation 
of surplus-labor and surplus-value, is raised by a. prolonga- 
tion of the working day and an intensification of labor. 
These two points have been fully discussed in volume I as 
incidents to the production of absolute and relative surplus- 
value. There are many ways of intensifying labor, which 
imply an increase of the constant capital as compared to the 
variable, and consequently a fall in the rate of profit, for in- 
stance setting a laborer to watch a larger number of ma- 
chines. In such cases — and in the majority of manipula- 
tions serving to produce relative surplus-value — the same 
causes, which bring about an increase in the rate of surplus- 
value, may also imply a fall in the mass of surplus- 
value, looking upon the matter from the point of view of the 



I 



Counteracting Causes. 273 

total quantities of invested capital. But there are other 
means of intensification, such as increasing the speed of ma- 
chinery, which, although consuming more raw material, and, 
so far as the fixed capital is concerned, w^earing out the ma- 
chinery so much faster, nevertheless do not affect the relation 
of its value to the price of labor set in motion by it. It is 
particularly the prolongation of the working day, this inven- 
tion of modern industry, which increases the mass of appro- 
priated surplus-labor without essentially altering the propor- 
tion of the employed labor-power to the constant capital 
set in motion by it, and which tends to reduce this capital 
relatively, if anything. For the rest, we have already dem- 
onstrated — what constitutes the real secret of the tendency 
of the rate of profit to fall — that the manipulations made 
for the purpose of producing relative surplus-value amount 
on the whole to this : That on one side as much as possible 
of a certain quantity of labor is transformed into surjilus- 
value, and that on the other hand as little labor as possible is 
employed in proportion to the invested capital, so that the 
same causes, which permit the raising of the intensity of 
exploitation, forbid the exploitation of the same quantity of 
labor by the same capital as before. These are the warring 
tendencies, which, while aiming at a raise in the rate of sur- 
plus-value, have at the same time a tendency to bring about 
a fall in the mass of surplus-value, and therefore of the rate 
of surplus-value produced by a certain capital. It is fur- 
thermore appropriate to mention at this point the extensive 
introduction of female and child labor, in so far as the whole 
family must produce a larger quantity of surplus-value for a 
certain capital than before, even in case the total amount of 
their wages should increase, which is by no means general. 

Whatever tends to promote the production of relative sur- 
plus-value by mere improvements in methods, for instance in 
agriculture, without altering the magnitude of the invested 
capital, has the same effect. While the constant capital does 
not increase relatively to the variable in such cases, taking the 
variable capital as an index of the amount of labor-power 
employed, the mass of the product does increase in proportion 



274 Capitalist Production. 

to the labor-power employed. The same takes place, when the 
productive power of labor (whether its product passes into 
the consumption of the laborer or into the elements of con- 
stant capital) is freed from obstacles of circulation, of arbi- 
trary or other restrictions which become obstacles in course 
of time, in short, of fetters of all kinds, without touching di- 
rectly the proportion between the variable and the constant 
capital. 

It might be asked, whether the causes checking the fall of 
the rate of profit, but always hastening it in the last analysis, 
include the temporary raise in surplus-value above the aver- 
age level, which recur now in this, now in that line of pro- 
duction for the benefit of those individual capitalists, who 
make use of inventions, etc., before they are generally intro- 
duced. This question must be answered in the affirmative. 

The mass of surplus-value produced by a capital of a cer- 
tain magnitude is the product of two factors, namely of the 
rate of surplus-value multiplied by the number of laborers 
employed at this rate. Hence it depends on the number of 
laborers, when the rate of surplus-value is given, and on the 
rate of surplus-value, when the number of laborers is given. 
In short, it depends on the composite proportion of the ab- 
solute magnitudes of the variable capital and the rate of 
surplus-value. Xow we have seen, that on an average the same 
causes, which raise the rate of relative sur|3lus-value, lower 
the mass of the employed labor-power. It is evident, however, 
that there will be a more or less in this according to the defi- 
nite proportion, in which the opposite movements exert them- 
selves, and that the tendency to reduce the rate of profit will 
be particularly checked by a raise in the rate of absolute sur- 
plus-value due to a prolongation of the working day. 

We saw in the case of the rate of profit, that a fall in the 
rate was generally accompanied by an increase in the mass of 
profit, on account of the increasing mass of the total capital 
employed. From the point of view of the total variable cap' 
ital of society, the surplus-value produced by it is equal to 
the profit produced by it. Both the absolute mass and the 
absolute rate of surplus-value have thus increased. The one 



Coiintcraciing Causes. 275 

has increased, because the quantity of labor-power employed 
by society has grown, the other, because the intensity of ex- 
ploitation of this labor-power has increased. But in the case 
of a capital of a given magnitude, for instance 100, the rate 
of surplus-value may increase, while the mass may decrease 
on an average ; for the rate is determined by the proportion, 
in which the variable capital produces value, while its mass 
is determined by the proportional part which the variable 
capital constitutes in the total capital. 

The rise in the rate of surplus-value is a factor, which de- 
temiines also the mass of surplus-value and thereby the rate 
of profit, for it takes place especially under conditions, in 
which, as we have seen, the constant capital is either not in- 
creased at all relatively to the variable capital, or not in- 
creased in proportion. This factor does not suspend the gen- 
eral law. But it causes that law to become more of a tend- 
ency, that is, a law whose absolute enforcement is checked, 
retarded, weakened, by counteracting influences. Since the 
same causes, which raise the rate of surplus-value (even a 
prolongation of the working time is a result of large scale 
industry), also tend to decrease the labor-power employed by 
a certain capital, it follows that these same causes also tend 
to reduce the rate of profit and to check the speed of this fall. 
If one laborer is compelled to perform as much labor as would 
be rationally performed by two, and if this is done under cir- 
cumstances, in which this one laborer can replace three, then 
this one will produce as much surplus-labor as was formerly 
produced by two, and to that extent the rate of surplus-value 
will have risen. But this one will not produce as much as 
foi-merly three, and to that extent the mass of surplus-value 
will have decreased. But this reduction in mass will be 
compensated, or limited, by the rise in the rate of surplus- 
value. If the entire population is employed at a higher rate 
of surplus-value, the mass of surplus-value will increase, al- 
though the population may remain the same. It will increase 
still more, if the population increases at the same time. And 
although this goes hand in hand with a relative reduction of 
the number of laborers employed in proportion to the magni- 



276 Capitalist Production. 

tude of the total capital, yet this reduction is checked or mod- 
erated by the rise in the rate of surplus-value. 

Before leaving this point, we wish to emphasize once more 
that, with a capital of a certain magnitude, the rate of sur- 
plus-value may rise, while its mass is decreasing, and vice 
versa. The mass of surplus-value is equal to the rate multi- 
plied by the number of laborers ; however, this rate is never 
calculated on the total, but only on the variable capital, ac- 
tually only for a day at a time. On the other hand, with a 
given magnitude of a certain capital, the rate of profit can 
never fall or rise, without a simultaneous fall or rise in the 
mass of surplus-value. 

II. Depression of Wages Below their Value. 
This is mentioned only empirically at this place, since it, 
like many other things, which might be enumerated here, has 
nothing to do with the general analysis of capital, but belongs 
in a presentation of competition, which is not given in this 
work. However, it is one of the most important causes check- 
ing the tendency of the rate of profit to fall. 

III. Cheapening of tlie Elements of Constant Capital. 
Everything that has been said in the first part of this vol- 
ume about the causes, which raise the rate of profit while the 
rate of surplus-value remains the same, or independently of 
the rate of surplus-value, belongs here. This applies particu- 
larly to the fact that, from the point of view of the total 
capital, the value of the constant capital does not increase in 
the same proportion as its material volume. For instance, 
the quantity of cotton, which a single European spinning op- 
erator works up in a modern factory, has grown in a colossal 
degree compared to the quantity formerly worked up by a 
European operator with a siDinning wheel. But the value 
of the worked-up cotton has not grown in proportion to its 
mass. The same holds good of machinery and other fixed 
capital. In short, the same development, which increases the 
mass of the constant capital relatively over that of the vari- 
able, reduces the value of its elements as a result of the in- 



Counteracting Causes. 277 

creased productivity of labor. In this way the value of the 
constant capital although continually increasing, is prevented 
from increasing at the same rate as its material volume, tliat 
is, the material volume of the means of production set in 
motion by the same amount of labor-power. In exceptional 
cases the mass of the elements of constant capital may even 
increase, while its value remains the same or even falls. 

The foregoing bears upon the depreciation of existing cap- 
ital (that is, of its material elements) which comes with the 
development of industry. This is another one of the causes 
which by their constant effects tend to check the fall of the 
rate of profit, although it may under certain circumstances 
reduce the mass of profit by reducing the mass of capital 
yielding a profit. This shows once more that the same causes, 
which bring about a tendency of the rate of profit to fall, 
also check the realisation of this tendency. 

IV. Relative Overpopulation. 
The production of a relative surplus-population is insep- 
arable from the development of the productivity of labor ex- 
pressed by a fall in the rate of profit, and the two go hand 
in hand. The relative overpopulation becomes so much more 
apparent in a certain country, the more the capitalist mode of 
production is developed in it. This, again, is on the one 
hand a reason, which explains why the imperfect subordina- 
tion of labor to capital continues in many lines of production, 
and continues longer than seems at first glance compatible 
with the general stage of development. This is due to the 
cheapness and mass of the disposable or unemployed wage 
laborers, and to the greater resistance, which some lines of 
production, by their nature, oppose to a transformation of 
manufacture into machine production. On the other hand, 
new lines of production are opened up, especially for the pro- 
duction of luxuries, and these lines take for their basis this 
relative overpopulation set free in other lines of production 
by the increase of their constant capital. These new lines 
start out with living labor as their predominating element, 
and go by degrees through the same evolution as the other 



278 Capitalist Production. 

lines of production. In either case the variable capital con- 
stitutes a considerable proportion of the total capital and 
wages are below the average, so that both the rate and mass 
of surplus-value are exceptionally high. Since the average 
rate of profit is formed by leveling the rates of profit in the 
individual lines of production, the same cause, which brings 
about a falling tendency of the rate of profit, once more pro- 
duces a counterbalance to this tendency and paralyses its 
effects more or less. 

V. Foreign Trade. 

To the extent that foreign trade cheapens partly the ele- 
ments of constant capital, partly the necessities of life for 
which the variable capital is exchanged, it tends to raise the 
rate of profit by raising the rate of surplus-value and lower- 
ing the value of the constant capital. It exerts itself gen- 
erally in this direction by permitting an expansion of the scale 
of production. But by this means it hastens on one hand 
the process of accumulation, on the other the reduction of the 
variable as compared to the constant capital, and thus a fall 
in the rate of profit. In the same way the expansion of for- 
eign trade, which is the basis of the capitalist mode of pro- 
duction in its stages of infancy, has become its own product in 
the further progress of capitalist development through its in- 
nate necessities, through its need of an ever expanding market. 
Here we see once more the dual nature of these effects. (Ri- 
cardo entirely overlooked this side of foreign trade.) 

Another question, which by its special nature is really be- 
yond the scope of our analysis, is the following: Is the 
average rate of profit raised by the higher rate of profit, which 
capital invested in foreign, and particularly in colonial trade, 
realises ? 

Capitals invested in foreign trade are in a position to yield 
a higher rate of profit, because, in the first place, they come 
in competition with commodities produced in other countries 
with lesser facilities of production, so that an advanced coun- 
try is enabled to sell its goods above their value even when it 
sells them cheaper than the competing countries. To the 



Counteracting Causes. 279 

extent that the labor of the advanced countries is here ex- 
ploited as a labor of a higher specific weight, the rate of profit 
rises, because labor which has not been paid as being of a 
higher quality is sold as such. The same condition may ob- 
tain in the relations with a certain country, into which com- 
modities are exported and from which commodities are iui- 
ported. This country may offer more materialised labor in 
goods than it receives, and yet it may receive in return com- 
modities cheaper than it could produce them. In the same 
way a manufacturer, who exploits a new invention before it 
has become general, undersells his competitors and yet sells 
his commodities above their individual values, that is to say, 
he exploits the sp)ecifically higher productive power of the 
labor employed by him as surplus-value. By this means he 
secures a surplus-profit. On the other hand, capitals invested 
in colonies, etc., may yield a higher rate of profit for tlie sim- 
ple reason that the rate of profit is higher there on account 
of the backward development, and for the added reason, that 
slaves, coolies, etc., permit a better exploitation of labor. We 
see no reason, why these higher rates of profit realised by 
capitals invested in certain lines and sent home by them 
should not enter as elements into the average rate of profit 
and tend to keep it up to that extent.^^ We see so much less 
reason for the contrary opinion, when it is assumed that such 
favored lines of investment are subject to the laws of free 
competition. What Ricardo has in mind as objections, is 
mainly this : With the higher prices realised in foreign trade, 
commodities are bought abroad and sent home. These com- 
modities are sold on the home market, and this can constitute 
at best but a temporary advantage of the favored spheres of 
production over others. This aspect of the matter is changed, 
when we no longer look upon it from the point of view of 
money. The favored country recovers more labor in exchange 
for less labor, although this difference, this surplus, is pock- 
.eted by a certain class, as it is in any exchange between labor 

^° Adam Smith was right in this respect, contrary to Ricardo, who said: "They 
contend the equality of profits will be brought about by the general rise of profits; 
and I am of opinion that the profits of the favoured trade will speedily submit to 
the general level. (Works, MacCulIoch ed., p. 73.) 



28o Capitalist Production. \ 

and capital. So far as the rate of profit is higher, because it 
is generally higher in the colonial country, it may go hand in 
hand with a low level of prices, if the natural conditions are 
favorable. It is trne that a compensation takes place, but 
it is not a compensation on the old level, as Ricardo thinks. 

However, this same foreign trade develops the capitalist 
mode of production in the home country. And this implies 
the relative decrease of the variable as compared to the con- 
stant caj^ital, Avhile it produces, on the other hand, an over- 
production for the foreign market, so that it has once more 
the opposite effect in its further course. 

And so we have seen in a general way, that the same causes, 
which produce a falling tendency in the rate of profit, also 
call forth counter-effects, which check and partly paralyse this 
fall. This law is not suspended, but its effect is weakened. 
Otherwise it Avould not be the fall of the average rate of 
profit, which wovild be unintelligible, but rather the relative 
slowness of this fall. The law therefore shows itself only as 
a tendency, whose effects become clearly marked only under 
certain conditions and in the course of long periods. 

Before passing on to something new, we will, for the sake 
of preventing misunderstanding, repeat two statements, which 
we have substantiated at different times. 

1) The same process, which brings about a cheapening of 
commodities in the course of development of the capitalist 
mode of production, also causes a change in the organic com- 
position of the social capital invested in the production of 
commodities, and thereby lowers the rate of profit. We must 
be careful, then, not to confound the reduction in the relative 
cost of an individual commodity, including that portion of its 
cost which represents wear and tear of machinery, with the 
relative rise in the value of the constant as compared to the 
variable capital, although vice versa every reduction in the 
relative cost of the constant capital, whose material elements 
retain the same volume or increase in volume, tends to raise 
the rate of profit, in other words, tends to reduce the value of 
the constant capital to that extent as compared with the shrink- 
ing proportions of the employed variable capital. 



Counteracting Causes. 281 

2) The fact that the additional living labor contained in 
the individual commodities, which together make np the prod- 
uct of capital, stands in a decreasing proportion to the ma- 
terials and instruments of labor consumed by them ; the fact, 
that an ever decreasing quantity of additional living labor is 
materialised in them, because their production requires less 
labor to the extent that the productive power of society is 
developed, — this fact does not touch the proportion, accord- 
ing to which the living labor contained in the commodities 
is divided into paid and unpaid labor. On the other hand, 
although the total quantity of additional living labor con- 
tained in them decreases, the unpaid portion increases over 
the paid portion, either by an absolute, or by a proportional 
reduction of the paid portion ; for the same mode of produc- 
tion, which reduces the total quantity of the additional living 
labor in the commodities, is accompanied by a rise of the ab- 
solute and relative surplus-value. The falling tendency of 
the rate of profit is accompanied by a rising tendency of the 
rate of surplus-value, that is, in the rate of exploitation. 
Xothing is more absurd, for this reason, than to explain a 
fall in the rate of profit by a rise in the rate of wages, al- 
though there may be exceptional cases where this may apply. 
Statistics do not become available for actual analyses of the 
rates of wages in different epochs and countries, until the con- 
ditions, which shape the rate of profit, are thoroughly un- 
derstood. The rate of profit does not fall, because labor be- 
comes less productive, but because it becomes more productive. 
Both phenomena, the rise in the rate of surplus-value and 
the fall in the rate of profit, are but specific forms through 
which the productivity of labor seeks a capitalistic expression, 

VI. The Increase of Stock Capital. 
The foregoing five points may be supplemented by the fol- 
lowing, which, however, cannot be more fully detailed for the 
present. A portion of capital serves only as interest-bearing 
capital, and is so calculated, to the extent that capitalist pro- 
duction makes progress and hastens accumulation. This term 
interest-bearing capital is not applied here to capital loaned 



282 Capitalist Production. 

by a capitalist who is satisfied with interest on it, while the 
industrial capitalist borrowing it pockets the investor's profit. 
This has no bearing upon the level of the average rate of 
profit, for this rate is concerned only with profit as composed 
of interest + profit of all sorts + ground rent, and the pro- 
portional division into these particular categories is immate- 
rial for it. We speak here of interest-bearing capital in the 
sense that these capitals, although invested in large productive 
enterprises, yield only large or small amounts of interest, so- 
called dividends, after all costs have been paid. This is typ- 
ical of railroads, for instance. These dividends do not help 
to level the average rate of profit, because they represent a 
lower than the average rate of profit. If they did help in this, 
then the average rate of profit would fall much lower. The- ' 
oretically such capitals may be included in the calculation, 
and in that case the result will be a lower rate of profit than 
that which actually seems to exist and determine the actions 
of the capitalists, since the constant capital is the largest as 
compared to the variable capital precisely in these enterprises. 



CHAPTER XV. 

UNRAVELING THE INTERNAL CONTRADICTIONS OF THE LAW. 

I. General Bemarks. 
We have seen in the first part of this volume, that the rate 
of profit expresses the rate of surplus-value always lower 
than it actually is. We have now seen, that even a rising 
rate of surplus-value has a tendency to express itself in a 
falling rate of profit. The rate of profit would be equal to 
the rate of surplus-value only if c = O, that is, if the entire 
invested capital were paid out in wages. A falling rate of 
profit does not express a falling rate of surplus-value, unless 
the proportion of the value of the constant capital to the 
quantity of labor-power set in motion by it remains unchanged, 
or the amount of labor-power has increased relatively over 
the value of the constant capital. 



Internal Cuiitradictions. 283 

Ricardo, under pretense of analysing the rate of profit, 
actually analyses only the rate of surplus-value, and he does 
so on the assumption that the working day is intensively and 
extensively a constant magnitude. 

A fall in the rate of profit and a hastening of accumulation 
are in so far only different expressions of the same process as 
both of them indicate the development of the productive 
power. Accumulation in its turn hastens' the fall of the 
rate of profit, inasmuch as it implies the concentration of 
labor on a large scale and thereby a higher composition of 
capital. On the other hand, a fall in the rate of profit hastens 
the concentration of capital and its centralisation through the 
expropriation of the smaller capitalists, the expropriation of 
the last survivers of the direct producers who still have any- 
thing to give up. This accelerates on one hand the accumula- 
tion, so far as mass is concerned, although the rate of accumu- 
lation falls with the rate of profit. 

On the other hand, so far as the rate of self-expansion of 
the total capital, the rate of profit, is the incentive of capi- 
talist production (just as this self-expansion of capital is its 
only purpose, its fall checks the formation of new independent 
capitals and thus seems to threaten the development of the 
process of capitalist production. It promotes overproduction, 
speculation, crises, surplus-capital along with surplus-popula- 
tion. Those economists who, like Kicardo, regard the capi- 
talist mode of production as absolute, feel nevertheless, that 
this mode of production creates its own limits, and therefore 
they attribute this limit, not to production, but to nature (in 
itheir theory of rent). But the main point in their horror 
over the falling rate of profit is the feeling, that capitalist 
production meets in the development of productive forces a 
barrier, which has nothing to do with the production of wealth 
as such ; and this peculiar barrier testifies to the finiteness and 
the historical, merely transitory character of capitalist pro* 
duction. It demonstrates tliat this is not an absolute mode 
for the production of wealth, but rather comes in conflict with 
the further development of wealth at a certain stage. 

It is true that Eicardo and his school considered only the 



284 Capitalist Production. 

industrial profit, which includes interest. But the rate of 
ground-rent has likewise a tendency to fall, although its abso- 
lute mass increases, and it may also increase proportionately 
more than the industrial profit. (See Ed. West, who de- 
veloped the law of ground-rent before Ricardo.) If we con- 
sider the total social capital C, and use p" to indicate the in- 
dustrial profit remaining after the deduction of interest and 
ground rent, i to indicate interest, and r to indicate ground- 
rent, then ■§-=-£- =^-^=?+-C+C"- ^^® ^^^^'^ ^^^^ ^^^^*' ^^'^"^^ 
s, the total amount of surplus-value, is continually increasing 
in the course of capitalist development, nevertheless -^ is 
just as steadily declining, because C grows still more rapidly 
than s. Therefore it is no contradiction, tliat p'', i, and r, 
should be steadily increasing, each by itself, while -^ = -^ as 
well as ^j -^, and -^, each by itself, should ever decline, or 
that p" should increase relatively more than i, or r more 
than p'', or, perhaps, more than p'' and i. With a rise in the 
total surplus-value or profit s =, p, but a simultaneous fall in 
the rate of profit ■^=-^j the proportional magnitude of the 
parts p'', i, and r, which make up s = p, may change at will 
within the limits set by the total amount of s, without there- 
by affecting the magnitude of s or -^. 

The mutual variation of p", i and r is but a vary- 
ing distribution of s among different classes. Consequently 
^, ^, and -^j the rate of industrial profit, the rate of interest, 
and the rate of ground-rent to the total capital, may rise rela- 
tively to one another, while -^, the average rate of profit, is 
falling. The only condition is that the sum of all three can- 
not exceed ■^. If the rate of profit falls from 50% to 25%, 
because the composition of a certain capital with a rate of 
surplus-value of 100% has changed from 50 c -|- 50 v to 
75 c -|- 25 V, then a capital of 1,000 will yield a profit of 
500 in the first case, and a capital of 4,000 will yield a profit 
of 1,000 in the second case. We see that s or p have doubled, 
while p' has fallen by one-half. And if that 50% was for- 
merly divided into 20 profit, 10 interest, 20 rent, then ^ = 



Internal Contradictions. 285 

20 fc, 4- =10%, and -^ = 207©- If conditions remained 
the same after the change from 50% to 25 7©, then ^ would 
be 1070, -^ would be 5%, and -^ = lOT?. If, however, £; 
should fall to S% and -^ to 47o, then -J- would rise to 187o. 
The proportional magnitude of r would have risen as against 
p'' and i, but nevertheless p', the rate of profit, would have 
remained the same. Under both assumptions, the sum of 
p''', i, and r would have increased, because it would have been 
produced by a capital of four times the size of the former. 
By the way, Ricardo's assumption that the industrial profit 
(plus interest) originally pockets the entire profit, is his- 
torically and logically false. It is rather the progress of cap- 
italist production which, 1), places the Avhole profit at first 
hand at the disposal of the industrial and commercial capi- 
talists for further distribution, and, 2), reduces rent to the 
excess over the profit. On this capitalist basis, rent further 
increases, so far as it is a portion of profit (that is, of the 
surplus-value produced by the total capital), while the specific 
portion of the product, which the capitalist pockets, does not. 
The creation of surplus-value, assuming the necessary 
means of production, or sufficient accumulation of capital, to 
be existing, finds no other limit but the laboring population, 
when the rate of surplus-value, that is, the intensity of ex- 
ploitation, is given; and no other limit but the intensity of 
exploitation, when the laboring population is given. And the 
capitalist process of production consists essentially of the 
production of surplus-value, materialised in the surplus-prod- 
uct, which is that aliquot portion of the produced commodi- 
ties, in which unpaid labor is materialised. It must never 
be forgotten, that the production of this surplus-value — and 
the reconversion of a portion of it into capital, or accumula- 
tion, forms an indispensable part of this production of sur- 
plus-value — is the immediate purpose and the compelling 
motive of capitalist production. It will not do to represent 
capitalist production as something which it is not, that is to 
say, as a production having for its immediate purpose the 
consumption of goods, or the production of means of enjoy- 



286 Capitalist Production. 

ment for capitalists. This would Le overlooking the specific 
character of capitalist production, which reveals itself in its 
innermost essence. 

The creation of this surplus-value is the object of the direct 
process of production, and this process has no other limits but 
those mentioned above. As soon as the available quantity of 
surplus-value has been materialised in commodities, surplus- 
value has been produced. But this production of surplus- 
value is but the first act of the capitalist process of produc- 
tion, it merely terminates the act of direct production. Capi- 
tal has absorbed so much unpaid labor. With the develop- 
ment of the process, which expresses itself through a falling 
tendency of the rate of profit, the mass of surplus-value thus 
produced is swelled to immense dimensions. ISTow comes the 
second act of the process. The entire mass of commodities, 
the total product, which contains a portion which is to re- 
produce the constant and variable capital as well as a portion 
representing surplus-value, must be sold. If this is not done, 
or only partly accomplished, or only at prices which are be- 
low the prices of production, the laborer has been none the 
less exploited, but his exploitation does not realise as much 
for the capitalist. It may yield no surplus-value at all for 
him, or only realise a portion of the produced surplus-value, 
or it may even mean a partial or complete loss of his capital. 
The conditions of direct exploitation and those of the realisa- 
tion of surplus-value are not identical. They are separated 
logically as well as by time and space. The first are only 
limited by the productive power of society, the last by the 
proportional relations of the various lines of production and 
by the consuming power of society. This last-named power 
is not determined either by the absolute productive power nor 
oy the absolute consuming power, but by the consuming power 
jased on antagonistic conditions of distribution, which re- 
iuces the consumption of the great mass of the population to 
a variable minimum within more or less narrow limits. The 
consuming power is furthermore restricted by the tendency 
to accumulate, the greed for an expansion of capital and a 
production of surplus-value on an enlarged scale. This is a 



Internal Contradictions. 287 

law of capitalist production imposed by incessant revolutions 
in the methods of production themselves, the resulting depre- 
ciation of existing capital, the general competitive struggle 
and the necessity of improving the product and expanding the 
scale of production, for the sake of self-preservation and on 
penalty of failure. The market must, therefore, be contin- 
ually extended, so that its interrelations and the conditions 
regulating them assume more and more the form of a natural 
law independent of the producers and become ever more un- 
controllable. This internal contradiction seeks to balance it- 
self by an expansion of the outlying fields of production. But 
to the extent that the productive power develops, it finds itself 
at variance with the narrow basis on which the condition of 
consumption rest. On this self contradictory basis it is no con- 
tradiction at all that there should be an excess of capital simul- 
taneously with an excess of population. For while a combina- 
tion of these two would indeed increase the mass of the pro- 
duced surplus-value, it would at the same time intensify the 
contradiction between the conditions under which this surplus- 
value is produced and those under which it is realised. 

If a certain rate of profit is given, the mass of profit de- 
pends on the magnitude of the advanced capital. Accumula- 
tion is then determined by that portion of this mass, which is 
reconverted into capital. This portion, in its turn, being equal 
to the profit minus the revenue consumed by the capitalists, 
will depend not merely on the value of this mass, but also on 
the cheapness of the commodities which the capitalist can buy 
with it, commodities which pass partly into his individual 
consumption, partly into his constant caj^ital. (Wages are 
here assumed to be a given quantity.) 

The mass of capital which the laborer sets in motion, whose 
value he preserves by his labor and reproduces in his product, 
is quite different from the value which he adds to it. If the 
mass of the capital equals 1,000, and the added labor 100, 
then the reproduced capital equals 1,100. If the mass equals 
100 and the added labor 20, then the reproduced capital 
equals 120. In the first case the rate of profit is 10%, in 
the second 20%. And yet more can be accumulated out of 



288 Capitalist Production. 

100 tlian out of 20. And thus the river of capital rolls on 
(aside from its depreciation by an increase of the productive 
power), or its accumulation does, not in proportion to the 
level of the rate of profit, but in proportion to the impetus 
which it already has. A high rate of profit, so far as it is 
based on a high rate of surplus-value, is possible when the 
working day is very long, although labor may not be highly 
productive. This is possible, because the wants of the la- 
borers are very insignificant, and therefore the average wages 
very low, although labor itself unproductive. The low level 
of wages will have for its counterpart a lack of energy among 
laborers. Capital then accumulates slowly, in spite of the 
high rate of profits. Population stagnates and the working 
time, which the product costs, is long, while the wages paid 
to the laborer are small. 

The rate of profit sinks, not because the laborer is less ex- 
ploited, but because less labor is employed in proportion to 
the employed capital in general. 

If a falling rate of profit goes hand in hand with an increase 
in the mass of profits, as we have shown, then a larger por- 
tion of the annual product of labor is appropriated by the 
capitalist under the name of capital (as a substitute for con- 
sumed capital) and a relatively smaller portion under the 
name of profit. Hence the phantastic idea of the priest Chal- 
mers, that the capitalists pocket so much more profits, the 
smaller the quantity of the annual product expended by them 
as capital. The state church then comes to their assistance 
in order to help them to consume the greater part of tlie 
surplus-product instead of capitalising it. The preacher con- 
founds cause with effect. By the way, the mass of profits in- 
creases also at a small rate with the magnitude of the invested 
capital. However, this requires at the same time a concentra- 
tion of capital, since the conditions of production then de- 
mand the employment of capital on a large scale. It like- 
wise requires its centralisation, that is, a devouring of small 
capitalists by the great capitalists and decapitalisation of the 
former. It is but a second instance of separating the pro- 
ducers from their requirements of production, for these small 



Internal Contradictions. 289 

capitalists still belong to the producers, since their own labor 
plajs a role in this problem. Generally speaking, the labor 
of a capitalist stands in an inverse proportioti to the size cf 
his capital, that is, to his degree as a capitalist. This divorce 
of requirements of production here, and producers there, is 
inseparable from the nature of capital. It begins with the 
inauguration of primitive accumulation. (Vol. I, chap. 
XXVI), becomes a permanent process in the accumulation and 
concentration of capital, and expresses itself finally as a cen- 
tralisation of already existing capitals in a few hands and a 
decapitalisation of many (a change in the method of expro- 
priation). This process would soon bring about the collapse 
of capitalist production, if it were not for counteracting tend- 
encies, which continually have a decentralising effect by the 
side of the centripetal ones. 

II. Conflict between the Expansion of Production and the 
Creation of Values. 

The development of the productive power of labor shows 
itself in two ways : First, in the magnitude of the already 
produced productive powers, in the volume of values and 
masses of requirements of production, under which new pro- 
duction is carried on, and in the absolute magnitude of the 
already accumulated productive capital : secondly, in the rela- 
tive smallness of the capital invested in wages as compared to 
the total capital, that is, in the relatively small quantity of 
living labor required for the reproduction and self-expansion 
of a given capital as compared to mass production. It is at 
the same time conditioned on the concentration of capital. 

So far as the employed labor-power is concerned, the de- 
velopment of the productive powers shows itself once more in 
two ways: First, in the increase of surplus-labor, that is, 
the reduction of the necessary labor time required for the re- 
production of labor-power; secondly, in the decrease of the 
quantity of labor-power (the number of laborers) employed 
in general for the purpose of setting in motion a given capital. 

Both movements do not only go hand in hand, but are mu- 
tually conditioned on one another. They are different phe- 



jgo Capitalist Production. 

nomeiia, through which the same law expresses itself. How- 
ever, they affect the rate of profit in opposite ways. The total 
mass of profits is equal to the total mass of surplus-values, 

the rate of profit = f = advanced'"to7ai'capit rr ^^o^^'. surplus- 
value, as a totals is determined first by its rate_, secondly by 
the mass of labor simultaneously employed at this rate, or 
what amounts to the same, by the magnitude of the variable 
capital. One of these factors, the rate of surplus-value, rises 
in one direction, tlie other factor, the number of laborers, falls 
in the opposite direction (relatively or absolutely). To the 
extent that the development of the productive power reduces 
the paid portion of the employed labor, it raises the surplus- 
value by raising its rate ; but to the extent that it reduces the 
total mass of labor employed by a certain capital, it reduces the 
factor of numbers with which the rate of surplus-value is mul- 
tiplied in order to calculate its mass. Two laborers, each work- 
ing 12 hours daily, cannot produce the same mass of surplus- 
value as 24: laborers each working only 2 hours, even if they 
could live on r.lr and did not have to work for themselves at all. 
In this respect, then, the compensation of the reduction in the 
number of laborers by means of an intensification of exploita- 
tion has certain impassible limits. It may, for this reason, 
check the fall of the rate of profit, but cannot prevent it en- 
tirely. 

With the development of the capitalist mode of production, 
the rate of profit therefore falls, while its mass increases with 
the growing mass of the employed capital. Given the rate, 
the absolute increase in the mass of capital depends on its 
existing magnitude. But on the other hand, if this magni- 
tude is given, the proportion of its growth, the rate of its 
increment, depends on the rate of profit. The increase in the 
productive power (which, we repeat, always goes hand in 
hand with a depreciation of the productive capital) cannot 
directly increase the value of the existing capital, unless it 
increases, by raising the rate of profit, that portion of the 
value of the annual product which is reconverted into capital. 
So far as the productive power is concerned (since it has no 
direct bearing upon the value of the existing capital), it can 



Internal Contradictions. 2gi 

accomplish this only by raising the relative surplus-value, or 
reducing the value of the constant capital, so that those com- 
modities which enter either into the reproduction of labor- 
power or into the elements of constant capital are cheapened. 
Both of these things imply a depreciation of the existing cap- 
ital, and both of them go hand in hand with a relative re- 
duction of the variable as compared to the constant capital. 
Both things imply a fall in the rate of profit, and both of 
them check it. Furthermore, so far as an increased rate of 
profit causes a greater demand for labor, it tends to increase 
the working population and thus the material, whose exploita- 
tion gives to capital its real nature of capital. 

Indirectly, however, the development of the productive 
power of labor contributes to the increase of the value of the 
existing capital, by increasing the mass and variety of use- 
values, in which the same exchange value presents itself and 
which form the material substance, the objective elements, 
of capital, the material objects of which the constant capital 
is directly composed and the variable cajiital at least indi- 
rectly. With the same capital and the same labor more things 
are produced, which may be converted into capital, aside from 
their exchange value. Things which may serve for the ab- 
sorption of additional labor, and consequently of additional 
surplus-labor, and which therefore may become additional 
capital. The amount of labor, which a certain capital may 
command, does not depend on its value, but on the mass of 
raw and auxiliary materials, of machinery and elements of 
fixed capital, of necessities of life, of which it is composed, 
whatever may be their value. As the mass of the employed 
labor, and thus of surplus-labor, increases, so does the value 
of the reproduced capital and the surplus-value newly added 
to it grow. 

These two elements playing their role in the process of ac- 
cumulation should not, however, be observed in their quiet ex- 
istence side by side, as Kicardo does. They imply a contra- 
diction, which expresses itself in antagonistic tendencies and 
phenomena. These antagonistic agencies oppose each other 
simultaneously. 



292 Capitalist Production. 

Together with the incentives for an actual increase of the 
laboring population, which originates in the augmentation of 
that portion of the total social product which serves as capital, 
there are the effects of other agencies, which create merely a 
relative over-population. 

Together with the fall of the rate of profit gi-ows the mass 
of capitals, and hand in hand with it goes a depreciation of the 
existing capitals, which checks this fall and gives an acceler- 
ating push to the accumulation of capital-values. 

Together with the development of the productive power 
grows the higher composition of capital, the relative decrease 
of the variable as compared to the constant capital. 

These different influences make themselves felt, now more 
side bj side in space, now more successively in time. Peri- 
odically the conflict of antagonistic agencies seeks vent in 
crises. The crises are always but momentary and forcible 
solutions of the existing contradictions, violent eruptions, 
Avhich restore the disturbed equilibrium for a while. 

The contradiction, generally speaking, consists in this that 
the capitalist mode of production has a tendency to develop 
the productive forces absolutely, regardless of value and of 
the surplus-value contained in it and regardless of the social 
conditions under which capitalist production takes place ; 
while it has on the other hand for its aim the preservation of 
the value of the existing capital and its self-expansion to tlie 
highest limit (that is, an ever accelerated growth of this 
value). Its specific character is directed at the existing value 
of capital as a means of increasing this value to the utmost. 
The methods by which it aims to accomplish this comprise a 
fall of the rate of profit, a depreciation of the existing capi- 
tal, and a development of the productive forces of labor at 
the expense of the already created productive forces. 

The periodical depreciation of the existing capital, which 
is one of the immanent means of capitalist production by 
which the fall in the rate of profit is checked and the accu- 
mulation of capital-value through the formation of new capi- 
tal promoted, disturbs the existing conditions, witliin which 
the process of circulation and reproduction of capital take? 



Internal Contradictions. 293 

place, and is therefore accom23anied bj sudden stagnations 
and crises in the process of production. 

The relative decrease of variable capital as compared to the 
constant, which goes hand in hand with the development of 
the productive forces, gives an impulse to the growth of the 
laboring population, while it continually creates an artificial 
over-population. The accumulation of capital, so far as its 
value is concerned, is checked bj the falling rate of profit, in 
order to hasten still more the accumulation of its use-value, 
and this, in its turn, adds new speed to the accumulation of 
its value. 

Capitalist production is continually engaged in the attempt 
to overcome these immanent barriers, but it overcomes them 
only by means which again place the same barriers in its 
way in a more formidable size. 

The real harrier of capitalist production is capital itself. It 
is the fact that capital and its self-expansion appear as the start- 
ing and closing point, as the motive and aim of production; 
that production is merely production for capital, and not vice 
versa, the means of production mere means for an ever ex- 
panding system of the life process for the benefit of the 
society of producers. The barriers, within which the preser- 
vation and self-expansion of the value of capital resting on 
the expropriation and pauperisation of the great mass of pro- 
ducers can alone move, these barriers come continually in 
collision with the methods of production, which capital must 
employ for its purposes, and which steer straight toward an 
unrestricted extension of production, toward production for 
its o\\Ti self, toward an unconditional development of the 
productive forces of society. The means, this unconditional 
development of the productive forces of society, comes con- 
tinually into conflict with the limited end, the self-expansion 
of the existing capital. Thus, while the capitalist mode of 
production is one of the historical means by which the mate- 
rial forces of production are developed and the world-market 
required for them created, it is at the same time in continual 
conflict with this historical task and the conditions of social 
production corresponding to it. 



294 Capitalist Production. 

III. Surplus of Capital and Surplus of Population. 
With the fall of the rate of profit grows the lowest limit 
of capital required in the hands of the individual capitalist 
for the productive employment of labor, required both for the 
exploitation of labor and for bringing the consumed labor 
time within the limits of the labor time necessary for the 
production of the commodities, the limits of the average social 
labor time required for the production of the commodities. 
Simultaneously with it grows the concentration, because there 
comes a certain limit where large capital with a small rate 
of profit accumulates faster than small capital with a large 
rate of profit. This increasing concentration in its turn 
brings about a new fall in the rate of profit at a certain climax. 
The mass of the small divided capitals is thereby pushed into 
adventurous channels, speculation, fraudulent credit, fraud- 
ulent stocks, crises. The so-called plethora of capital refers 
always essentially to a plethora of that class of capital which 
finds no compensation in its mass for the fall in the rate 
of profit — and this applies always to the newly formed 
sprouts of capital — or to a plethora of capitals incapable of 
self-dependent action and placed at the disposal of the man- 
agers of large lines of industry in the form of credit. This 
plethora of capital proceeds from the same causes which call 
forth a relative over-population. It is therefore a phenome- 
non supplementing this last one, although they are found at 
opposite poles, unemployed capital on the one hand, and un- 
employed laboring population on the other. 

An overproduction of capital, not of individual commodi- 
ties, signifies therefore simply an over-accumulation of cap- 
ital — although the overproduction of capital always includes 
the overproduction of commodities. In order to imderstand 
what this over-accumulation is (its detailed analysis follows 
later), it is but necessary to assume it to be absolute. When 
would an overproduction of capital be absolute ? When would 
it be an overproduction which would not affect merely a few 
important lines of production, but which would be so abso- 
lute as to extend to every field of production ? 

There would be an absolute overproduction of capital as 



Internal Contradictions. 295 

soon as the additional capital for purposes of capitalist pro- 
duction would be equal to zero. The purpose of capitalist 
production is the self-expansion of capital, that is, the ap- 
propriation of surplus-labor, the production of surplus-value, 
of profit. As soon as capital would have grown to such a 
proportion compared with the laboring population, that neither 
the absolute labor time nor the relative surplus-labor time could 
be extended any further (this last named extension would 
be out of the question even in the mere case that the demand 
for labor would be very strong, so that there would be a tend- 
ency for wages to rise) ; as soon as a point is reached where 
the increased capital produces no larger, or even smaller, 
quantities of surplus-value than it did before its increase, 
there would be an absolute overproduction of capital. That 
is to say, the increased capital C + A C would not produce 
any more profit, or even less profit, than capital C before 
its expansion by A C. In both cases there would be a strong 
and sudden fall in the average rate of profit, but it would be 
due to a change in the composition of capital which would 
not be caused by the development of the productive forces, 
but by a rise in the money-value of the variable capital (on 
account of the increased wages) and the corresponding reduc- 
tion in the proportion of surplus-labor to necessary labor. 

In reality the matter would amount to this, that a portion 
of the capital would lie fallow completely or partially (be- 
cause it would first have to crowd some of the active capital 
out before it could take part in the process of self-expansion), 
while the active portion would produce values at a lower rate 
of profit, owing to the pressure of the unemployed or but 
partly employed capital. Matters would not be altered in 
this respect, if a part of the additional capital were to take 
the place of some old capital crowding this into the position 
of additional capital. We should always have on one side 
the sum of old capitals, on the other that of the additional 
capitals. The fall in the rate of profit would then be accom- 
panied by an absolute decrease in the mass of profits, since 
under the conditions assumed by us the mass of the employed 
labor-power could not be increased and the rate of surplus- 



296 Capitalist Production. 

value not raised, so that there could be no raising of the mass 
of surplus-value. And the reduced mass of profits M^ould have 
to be calculated on an increased total capital. — But even as- 
suming that the employed capital were to continue producing 
value at the old rate, the mass of profits remaining the same, 
this mass would still be calculated on an increased total cap- 
ital, and this would likewise imply a fall in the rate of 
profits. If a total capital of 1,000 yielded a profit of 100, 
and after its increase to 1,500 still yielded 100, then 1,000 
in the second case would yield only 66§. The self-expansion 
of the old capital would have been reduced absolutely. A 
capital of 1,000 would not yield any more under the new cir- 
cumstances than formerly a capital of 666f. 

It is evident that this actual depreciation of the old capital 
could not take place without a struggle, that the additional 
capital A C could not assume the functions of capital without 
an effort. The rate of profit would not fall on account of 
competition due to the overproduction of capital. Tlie com- 
petitive struggle would rather begin, because the fall of the 
rate of profit and the overproduction of capital are caused 
by the same conditions. The capitalists who are actively en- 
gaged with their old capitals would keep as much of the new 
additional capitals as would be in their hands in a fallow 
state, in order to prevent a depreciation of their original cap- 
ital and a crowding of its space within the field of production. 
Or they would employ it for the purpose of loading, even at 
a momentary loss, the necessity of keeping additional capi- 
tal fallow upon the shoulders of new intruders and other com- 
petitors in general. 

That portion of A C which would be in new hands would 
seek to make room for itself at the expense of the old capital, 
and would accomplish this in part by forcing a portion of 
the old capital into a fallow state. The old capital would 
have to give up its place to the new and retire to the place 
of the completely or partially unemployed additional capital. 

Under all circumstances, a portion of the old capital would 
bo compelled to lie fallow, to give up its capacity of capital 
and stop acting and producing value as such. The com- 



Internal Contradictions. 297 

petitive struggle would decide what part would have to go 
into this fallow state. So long as everything goes well, com- 
petition effects a practical brotherhood of the capitalist class, 
as we have seen in the case of the average rate of profit, so 
that each shares in the common loot in proportion to the mag- 
nitude of his share of investment. But as soon as it is no 
longer a question of sharing profits, but of sharing losses, 
every one tries to reduce his own share to a minimum and 
load as much as possible upon the shoulders of some other com- 
petitor. However, the class must inevitably lose. How much 
the individual capitalist must bear of the loss, to what extent 
he must share in it at all, is decided by power and craftiness, 
and competition then transforms itself into a fight of hostile 
brothers. The antagonism of the interests of the individual 
capitalists and those of the capitalist class as a whole then 
makes itself felt just as previously the identity of these in- 
terests impressed itself practically on competition. 

How would this conflict be settled and the " healthy '' 
movement of capitalist production resumed under normal con- 
ditions ? The mode of settlement is already indicated by the 
mere statement of the conflict whose settlement is under dis- 
cussion. It implies the necessity of making unproductive, or 
even partially destroying, some capital, amounting either to 
the complete value of the additional capital C, or to a part 
of it. But a graphic presentation of this conflict shows that 
the loss is not equally distributed over all the individual cap- 
itals, but according to the fortunes of the competitive struggle, 
which assigns the loss in very different proportions and in 
various shapes by grace of previously captured advantages or 
positions, so that one capital is rendered unproductive, an- 
other destroyed, a third but relatively injured or but momen- 
tarily depreciated, etc. 

But under all circumstances the equilibrium is restored by 
making more or less capital unproductive or destroying it. 
This Avould affect to some extent the material substance of cap- 
ital, that is, a part of the means of production, fixed and cir- 
culating capital, would not perform any service as capital ; a 
portion of the running establishments would then close down. 



298 Capitalist Production. 

Of course, time would corrode and depreciate all means of 
production (except land), but this particular stagnation would 
cause a far more serious destruction of means of production. 
However, the main effect in this case would be to suspend the 
functions of some means of production and prevent them for a 
shorter or longer time from serving as means of production. 

The principal work of destruction would show its most 
dire effects in a slaughtering of the values of capitals. That 
portion of the value of capital which exists only in the form 
of claims on future shares of surplus-value of profit, which 
consists in fact of creditor's notes on production in its various 
forms, would be immediately depreciated by the reduction of 
the receipts on which it is calculated. One portion of the 
gold and silver money is rendered unproductive, cannot serve 
as capital. One portion of the commodities on the market 
can complete its process of circulation and reproduction only 
by means of an immense contraction of its prices, which means 
a depreciation of the capital represented by it. In the same 
way "the elements of fixed capital are more or less depreciated. 
Then there is the added complication that the process of re- 
production is based on definite assumptions as to prices, so 
that a general fall in prices checks and disturbs the process of 
reproduction. This interference and stagnation paralyses the 
function of money as a medium of payment, which is condi- 
tioned on the development of capital and the resulting price 
relations. The chain of payments due at certain times is 
broken in a hundred places, and the disaster is intensified by 
the collapse of the credit-system. Thus violent and acute crises 
are brought about, sudden and forcible depreciations, an ac- 
tual stagnation and collapse of the process of reproduction, and 
finally a real falling off in reproduction. 

At the same time still other agencies w^ould have been at 
work. The stagnation of production would have laid off a 
part of the laboring class and thereby placed the employed part 
in a condition, in which they would have to submit to a re- 
duction of wages, even below the average. This operation has 
the same effect on capital as though the relative or absolute 
surplus-value had been increased at average wages. The time 



Internal Contradictions. 299 

of prosperity would have promoted marriages among the la- 
borers and reduced the decimation of the offspring. These cir- 
cumstances, while implying a real increase in population, do 
not signify an increase in the actual working population, but 
they nevertheless affect the relations of the laborers to capital 
in the same way as though the number of the actually working 
laborers had increased. On the other hand, the fall in prices 
and the competitive struggle would have given to every capi- 
talist an impulse to raise the individual value of his total prod- 
uct above its average value by means of new machines, new and 
improved working metliods, new combinations, which means, 
to increase the productive power of a certain quantity of labor, 
to lower the proportion of the variable to the constant capital, 
and thereby to release some laborers, in short, to create an ar- 
tificial over-population. The depreciation of the elements of 
constant capital itself would be another factor tending to raise 
the rate of profit. The mass of the employed constant capital, 
compared to the variable, would have increased, but the value 
of this mass might have fallen. The present stagnation of 
production would have prepared an expansion of production 
later on, within capitalistic limits. 

And in this way the cyole would be run once more. One 
portion of the capital which had been depreciated by the stag- 
nation of its function would recover its old value. For the 
rest, the same vicious circle would be described once more under 
expanded conditions of production, in an expanded market, and 
with increased productive forces. 

However, even under the extreme conditions assumed by us 
this absolute overproduction of capital would not be an ab- 
solute overproduction in the sense that it would be an abso- 
lute overproduction of means of production. It would be an 
overproduction of means of production only to the extent that 
they serve as capital, so that the increased value of its in- 
creased mass would also imply a utilisation for the production 
of more value. 

Yet it would be an overproduction, because capital would 
be unable to exploit labor to a degree required by the " healthy, 
normal '' development of the process of capitalist production, 



300 Capitalist Production. 

a degree of exploitation, which would increase at least the 
mass of profit to the extent that the mass of the employed cap- 
ital would grow; which would therefore exclude any possi- 
bility of the rate of profit falling to the same extent that cap- 
ital growls, or of the rate of profits falling even more rapidly 
than caj^ital grows. 

Overproduction of capital never signifies anything else but 
overproduction of means of production — means of produc- 
tion and necessities of life — which may serve as capital, that 
is, serve for the exploitation of labor at a given degree of ex- 
ploitation ; for a fall in the intensity of exploitation below a 
certain point calls forth disturbances and stagnations in the 
process of capitalist production, crises, destruction of capital. 
It is no contradiction that this overproduction of capital is 
accompanied by a more or less considerable relative over-pop- 
ulation. The same circumstances, which have increased the 
productive power of labor, augmented the mass of produced 
commodities, expanded the markets, accelerated the accumula- 
tion of capital both as concerns its mass and its value, and 
lowered the rate of profit, these same circumstances have also 
created a relative over-population, and continue to create it 
all the time, an over-population of laborers who are not em- 
ployed by the surplus-capital on account of the low degree of 
exploitation at which they might be employed, or at least on 
account of the low rate of profit, wdiich they w^ould yield with 
the given rate of exploitation. 

If capital is sent to foreign countries, it is not done, because 
there is absolutely no employment to be had for it at home. 
It is done, because it can be employed at a higher rate of profit 
in a foreign country. But such capital is absolute surplus- 
capital for the employed laboring population and for the 
home country in general. It exists as such together with the 
relative over-population, and this is an illustration of the way 
in which both of them exist side by side and are conditioned 
on one another. 

On the other hand, the fall in the rate of profit connected 
with accumulation necessarily creates a competitive struggle. 
The compensation of the fall in the rate of profit by a rise in 



Internal Contradictions. 301 

the mass of profit applies only to the total social capital and 
to the great capitalists who are firmly installed. The new 
additional capital, which enters upon its functions, does not 
enjoy any such compensating conditions. It must conquer 
them, for itself, and so the fall in the rate of profit calls forth 
the com.petitive struggle among capitalists, not vice versa. 
This competitive struggle is indeed accompanied by a tran- 
sient rise in. wages and a resulting further fall of the rate of 
profit for a short time. The same thing is seen in the over- 
production of commodities, the overstocking of markets. 
Since the aim of capital is not to minister to certain wants, 
but to produce profits, and since it accomplishes this purpose 
by methods which adapt the mass of production to the scale 
of production, not vice versa, conflict must continually en- 
sue between the limited conditions of consumption on a capi- 
talist basis and a production which forever tends to exceed 
its immanent barriers. Moreover, capital consists of commod- 
ities, and therefore the overproduction of capital implies an 
overproduction of commodities. Hence we meet with the pe- 
culiar phenomenon that the same economists, who deny the 
overproduction of commodities, admit that of capital. If it is 
said that there is no general overproduction, but that a dis- 
proportion grows up between various lines of production, then 
this is tantamount to saying that within capitalist production 
the proportionality of the individual lines of production is 
brought about through a continual process of disproportional- 
ity, that is, the interrelations of production as a whole enforce 
themselves as a blind law upon the agents of production in- 
stead of having brought the productive process under their 
common control as a law understood by the social mind. It 
amounts furthermore to demanding that countries, in which 
capitalist production is not yet developed, should consume and 
produce at the same rate as that adapted to countries with 
capitalist production. If it is said that overproduction is only 
relative, then the statement is correct ; but the entire mode of 
production is only a relative one, whose barriers are not ab- 
solute, but have absoluteness only in so far as it is capitalistic. 
Otherwise, how could there be a lack of demand for the very 



302 Copifalist Production. 

comiiiodities which the mass of the people want, and how 
would it be possible that this demand must be sought in for- 
eign countries, in foreign markets, in order that the labor- 
ers at home might receive in payment the average amount 
of necessities of life ? This is possible only because in 
this specific capitalist interrelation the surplus-product as- 
sumes a form, in which its owner cannot offer it for con- 
sumption, unless it first reconverts itself into capital for 
him. Finally, if it is said that the capitalists would only 
have to exchange and consume those commodities among 
themselves, then the nature of the capitalist mode of pro- 
duction is forgotten, it is forgotten, that the question is 
merely one of expanding the value of the capital, not of con- 
suming it. In short, all these objections to the obvious phe- 
nomena of overproduction (phenomena which do not pay any 
attention to these objections) amounts to this, that the bar- 
riers of capitalist production are not absolute barriers of pro- 
duction itself and therefore no barriers of this specific, capi- 
talistic, production. But the contradiction of this capitalist 
mode of production consists precisely in its tendency to an ab- 
solute development of productive forces, a development, which 
comes continually in conflict with the specific conditions of 
production in which capital moves and alone can move. 

It is not a fact that too many necessities of life are pro- 
duced in proportion to the existing population. The reverse 
is true. JS^t enough is produced to satisfy the wants of the 
great mass decently and humanely. 

It is not a fact that too many means of production are pro- 
duced to employ the able bodied portion of the population. 
The reverse is the case. In the first place, too large a portion 
of the population is produced consisting of people who are 
really not capable of working, who are dependent through 
force of circumstances on the exploitation of the labor of 
others, or compelled to perfonn certain kinds of labor which can 
be dignified with this name only under a miserable mode of 
production. In the second place, not enough means of pro- 
duction are produced to permit the employment of the entire 
able bodied population under the most productive conditions, 



Internal Contradictions. 303 

3c that their absolute labor time would be shortened by the 
mass aud effectiveness of the constant capital employed during 
working hours. 

On the other hand, there is periodically a production of too 
many means of production and necessities of life to permit of 
their serving as means for the exploitation of the laborers at 
a certain rate of profit. Too many commodities are pro- 
duced to permit of a realisation of the value and surplus- 
value contained in them under the conditions of distribution 
and consumption peculiar to capitalist production, that is, too 
many to permit of the continuation of this process without ever 
recurring explosions. 

It is not a fact that too much wealth is produced. But it 
is true that there is periodical over-production of Avealth in » 
its capitalistic and self-contradictory form. 

The barrier of the capitalist mode of production becomes 
apparent : 

1) In the fact that the development of the productive power 
of labor creates in the falling rate of profit a law which turns 
into an antagonism of this mode of production at a certain 
point and requires for its defeat periodical crises. 

2) In the fact that the expansion or contraction of pro- 
duction is determined by the appropriation of unpaid labor, 
and by the proportion of this unpaid labor to materialised 
labor in general, or, to speak the language of the capitalists, 
is determined by profit and by the proportion of this profit 
to the emjiloyed capital, by a definite rate of profit, instead of 
being determined by the relations of production to social wants 
to the wants of socially developed human beings. The capital- 
ist mode of production, for this reason, meets with barriers at a 
certain scale of production which would be inadequate under 
different conditions. It comes to a standstill at a point de- 
termined by the production and realisation of profit, not by 
the satisfaction of social needs. 

If the rate of profit falls, there follows on one hand an ex- 
ertion of capital, in order that the capitalist may be enabled 
to depress the individual value of his commodities beiow the 
social average level and thereby realise an extra profit at the 



304 Capitalist Production. 

prevailing market prices. On the other hand, there follows 
swindle and a general promotion of swindle by frenzied at- 
tempts at new methods of production, new investments of 
capital, new adventures, for the sake of securing some shred 
of extra profit, which shall be independent of the general aver- 
age and above it. 

The rate of profit, that is, tlie relative increment of capital, 
is above all important for all new oftshoots of capital seeking 
an independent location. And as soon as the formation of 
capital were to fall into the hands of a few established great 
capitals, which are compensated by the mass of profits for 
the loss through a fall in the rate of profits, the vital fire of 
production would be extinguished. It would fall into a dor- 
mant state. The rate of profit is the compelling power of 
capitalist production, and only such things are produced as 
yield a profit. Hence the fright of the English economists 
over the decline of the rate of profit. That the bare possi- 
bility of such a thing should worry Ricardo, shows his pro- 
found understanding of the conditions of cfl.()italist produc- 
tion. The reproach moved against him, thy,t he has an eye 
only to the development of the productive forces regardless of 
" human beings," regardless of the sacrifices; in human beings 
and capital values incurred, strikes precisely his strong point. 
The development of the productive forces of social labor is 
the historical task and privilege of capital. It is precisely 
in this way that it unconsciously creates the material require- 
ments of a higher mode of production. What worries Ri- 
cardo is the fact that the rate of profit, the stimulating prin- 
ciple of capitalist production, the fundamental premise and 
driving force of accumulation, should be endangered by the 
development of production itself. And the quantitative pro- 
portion means everything here. There is indeed something 
deeper than this hidden at this point, which he vaguely feels. 
It is here demonstrated in a purely economic way, that is, 
from a bourgeois point of view, within the confines of capi- 
talist understanding, from the standpoint of capitalist produc- 
tion itself, that it has a barrier, that it is relative, that it 
is not an absolute, but only a historical mode of productiors 



Internal Contradictions. 305 

lorresponding to a definite and limited epoch in the develop- 
jnent of the material conditions of production. 

IV. Supplementary Remarks. 

Seeing that the development of the productive power of 
labor proceeds very disproportionately in the various lines of 
industry, not only in degree, but also in at times in oppo- 
site directions, it follows that the mass of the average profit 
(== surplus-value)- must be considerably below that level, 
which one would naturally assume according to the develop- 
ment of the productive forces in the most advanced lines of 
industry. The fact that the develoj^ment of the productive 
forces in different lines of industry proceeds in considerably 
different rates, or even in opposite directions, is not due merely 
to the anarchy of competition and the peculiarity of the bour- 
geois mode of production. The productivity of labor is also 
conditioned on natural premises, which frequently become less 
productive to the extent that productivity, so far as it de- 
pends on social conditions, increases. This leads to opposite 
movements in these different spheres, progress here, retrogres- 
sion there. Consider, for instance, the mere influence of the 
seasons, on which the gTeater part of the raw materials de- 
pends for its mass, the exhaustion of forests, coal and iron 
mines, etc. 

While the circulating part of constant capital, such as raw 
material, etc., continually increases in mass to the extent 
that the productivity of labor grows, it is not so with the fixed 
capital, such as buildings, machinery, apparatus for lighting, 
heating, etc. Although a machine becomes absolutely dearer 
with the growth of its bodily mass, it becomes relatively 
cheaper. If five laborers produce ten times as many com- 
modities as formerly, this does not increase the outlay for 
fixed capital tenfold ; although the value of this part of the 
constant capital increases with the development of the produc- 
tive forces, it does not increase by any means in the same 
proportion with them. We have frequently pointed out the 
difference in the proportions of the constant to the variable 
capital, as it expresses itself in the fall of the rate of profit, 



3o6 Capitalist Production. 

and the difference in the same proportions as expressed with 
the development of the productivity of labor with reference 
to the individual commodity and its price. 

[The value of a commodity is determined by the total labor- 
time, whether past or living, incorporated in it. The increase 
in the productivity of labor consists precisely in this that the 
share of the living labor is reduced while that of the past 
labor is increased, but in such a way that the total quantity 
of labor incorporated in that commodity declines, so that the 
living labor decreases more than the past labor increases. The 
past labor — the constant part of capital — materialised in 
the value of a certain commodity consists partly of wear and 
tear of fixed, partly of circulating constant capital entirely 
consumed by that commodity, such as raw and auxiliary ma- 
terials. That portion of value which comes from raw and aux- 
iliary materials must decrease with the productivity of labor, 
because this productivity seeks expression through these mate- 
rials by reducing their value. On the other hand, it is precisely 
characteristic of the rising productivity of labor, that the fixed 
part of the constant capital is strongly augmented and with 
it that portion of value which, is transferred by wear and tear 
to the commodities. In order that a new method of produc- 
tion may turn out to be a real increase in productivity, it must 
transfer in wear and tear a smaller portion of the value of 
fixed capital than is deducted from it through a saving of 
living labor, in short, it must reduce the value of the com- 
modity. It must do so as a matter of course, even if an ad- 
ditional value is transferred to the commodity through an in- 
crease in the quantity or value of raw and auxiliary materials, 
as may sometimes happen. All additions of value must be 
more than compensated by the reduction in value resulting 
from a decrease in living labor. 

This reduction of the total quantity of labor incorporated 
in a certain commodity seems to be the essential mark of an 
increase in the productive power of labor, no matter under 
what sort of social conditions production is carried on. 
There is no doubt that the productivity of labor would be 
measured by this standard in a society, in which the pro- 



Internal Contradictions. 307 

diicers would regulate their production according to a pre- 
conceived plan, or even under a simple production of com- 
modities. But how is this under capitalist production ? 

Take it, for instance, that a certain line of capitalist indus- 
try produces an average normal commodity of its sphere under 
the following conditions: The wear and tear of fixed capital 
amounts to | shilling per piece ; raw and auxiliary materials 
are transferred into it at the rate of 17^ shillings per piece; 
in wages, 2 shillings, and surplus-value 2 shillings, the rate 
of surplus-value heing 100%. Total value 22 shillings. We 
assume for the sake of simplicity that the capital in this line 
of production has the composition of the average social capital, 
so that the price of production of the commodities is identical 
with the value and the profit of the capitalist with the created 
surplus-value. In that case the cost-price of the commodity 
is ^ + 17| -f 2 = 20 sh., the average rate of profit -^-^ = 
10%, and the price of production of one individual commod- 
ity 22 sh., equal to its value. 

ISTow let us assume that a machine is invented, which re- 
duces the living labor required for each individual commodity 
by one-half, but at the same time trebles that portion of the 
commodity's value which is due to the wear and tear of fixed 
capital. In that case, the calculation is modified in this way: 
Wear and tear 1^ sh., raw and auxiliary materials the same 
as before, 17| sh., wages 1 sh., surplus-value 1 sh., together 
21 sh. The commodity has then fallen 1 sh. in value: The 
new machine has certainly increased the productivity of labor. 
From the point of view of the capitalist, the matter has now 
the following aspect : His cost-price is now 1^ sh. for wear, 
17| sh. for raw and auxiliary materials, 1 sh. for wages, total 
20 sh., as before. Since the rate of profit is not at once al- 
tered by the new machine, he will receive 10% more than his 
cost-price, that is, 2 sh. The price of production, then, re- 
mains unaltered at 22 sh., as before, but it is 1 sh. above 
the value of these commodities. So far as a society produc- 
ing under capitalist conditions is concerned, the commodity 
has not become any cheaper, the new machine signifies no im- 
provement. The capitalist is therefore not interested in the 



3o8 Capitalist Production. 

introduction of this new machine. And since its introduction 
would make his present and not yet worn-out machinery sim- 
ply worthless, would make old iron of it, Avould mean a posi- 
tive loss for him, he takes good care not to commit such a 
Utopian mistake. 

The law of increased productive power, then, does not ap- 
ply absolutely to capital. So far as capital is concerned, the 
productive power is not increased by the enhancement of pro- 
ductive labor in general, but only by saving more in the unpaid 
portion of living labor than is expended in past labor, as we 
have already indicated in volume I, chapter XV, 2. Here 
the capitalist mode of production falls into another contra- 
diction. Its historical mission is the ruthless development in 
geometrical progression, of the productivity of human labor. 
It becomes disloyal to its mission, whenever it puts a check 
upon the development of productivity, as it does here. Thus 
it demonstrates once again that it is becoming weak with 
age and more and more outliving its usefulness. ]^^ 

Under competition, the increase in the minimum of capital 
required for the successful operation of an independent in- 
dustrial establishment in keeping with the increase in pro- 
ductivity assumes the following aspect : As soon as the new 
and more expensive equipment has become universally estab- 
lished, smaller capitals are henceforth excluded from these 
enterprises. Smaller capitals can carry on an independent 
activity in such lines only during the incipient stage of me- 
chanical inventions. On the other hand, very large enter- 
prises, such as railroads, with an extraordinarily high rela- 
tive proportion of constant capital, do not yield any average 
rate of profit, but only a portion of it, interest. Otherwise 
the rate of profit would fall still lower. At the same time, 
this offers direct employment to large aggregations of capital 
in the form of stocks. 

An increase of capital, or accumulation of capital, does not 
imply a fall in the rate of profit, unless this growth is accom- 
panied by the aforementioned alterations in the proportions 

" The foregoing is placed between brackets, because it passes in some points 
beyond the scope of the original material, which I found in a note of the original 
manuscript, a revision of which I undertook. 



I 



Internal Contradictions. 309 

of the organic constituents of capital. IS'ow it so happens that 
in spite of the continual and daily revolutions in the mode of 
production, now this, now that, greater or smaller portion of 
the total capital continues for certain periods to accumulate 
on the basis of a given average proportion of those constituents, 
so that its growth does not imply any organic change, and con- 
sequently no fall in the rate of profit. This continual ex- 
pansion of capital, and consequently expansion of production 
on the basis of the old method of production, which proceeds 
quietly while the new methods are already developing by its 
side, is another reason, why the rate of profit does not decrease 
in the same degree in which the total capital of society grows. 

The increase of the absolute number of laborers, in spite of 
the relative decrease of the variable as compared to the con- 
stant capital, does not take place in all lines of production, and 
not uniformly in those in which it does proceed. In agricul- 
ture, the decrease of the element of living labor may be ab- 
solute. 

By the way, it is but a requirement of the capitalist mode 
of production that the number of wage workers should increase 
absolutely, in spite of its relative decrease. Under this mode, 
labor-powers become superfluous as soon as it is no longer com- 
pelled to employ them for 12 to 15 hours per day. A develop- 
ment of the productive forces which would diminish the ab- 
solute number of laborers, that is, which would enable the en- 
tire nation to accomplish its total production in a shorter 
time, would cause a revolution, because it would put the ma- 
jority of the population upon the shelf. In this the specific 
barrier of capitalist production shows itself once more, prov- 
ing that capitalist production is not an absolute form for the 
development of the productive powers and creation of wealth, 
but rather comes in collision with this development at a cer- 
tain point. This collision expresses itself partly through pe- 
riodical crises, which arise from the circumstance that now 
this, now that, portion of the laboring population is rendered 
superfluous in its old mode of employment. The barrier of 
capitalist production is the superfluous time of the laborers. 
The absolute spare time gained by society does not concern 



3IO Capitalist Production. 

Capitalism. The development of the productive powers con- 
cerns it only to the extent that it increases the surplus labor 
time of the working class, not to the extent that it decreases 
the labor time for material production in general. Thus cap- 
italist production moves in contradictions. 

We have seen that the growing accumulation of capital im- 
plies its growing concentration. Thus the power of capital, 
the personification of the conditions of social production in 
the capitalist, grows over the heads of the real producers. Cap- 
ital shows itself more and more as a social power, w^hose agent 
the capitalist is, and which stands no longer in any possible 
relation to the things which the labor of any single individual 
can create. Capital becomes a strange, independent, social 
power, which stands opposed to society as a thing, and as the 
power of capitalists by means of this thing. The contradic- 
tion betw^een capital as a general social power and as a power 
of private capitalists over the social conditions of production 
develops into an ever more irreconcilable clash, which im- 
plies the dissolution of these relations and the elaboration of 
the conditions of production into universal, common, social 
conditions. This elaboration is performed by the development 
of the productive powers under capitalist production, and by 
the course which this development pursues. 



No capitalist voluntarily introduces a new method of pro- 
duction, no matter how much more productive it may be, and 
how much it may increase the rate of surplus-value, so long as 
it reduces the rate of profit. But every new method of produc- 
tion of this sort cheapens the commodities. Hence the capi- 
talist sells them originally above their prices of production, 
or, perhaps, above their value. He pockets the difference, 
which exists between these prices of production and the mar- 
ket-prices of the other commodities produced at higher prices 
of production. He can do this, because the average labor time 
required socially for the production of these other commodities 
is higher than the labor time required under the new methods 
of production. His method of production is above the social 
average. But competition generalises it and subjects it to the 



Internal Contradictions, 311 

general law. Then follows a fall in the rate of profit — per- 
haps first in this sphere of production, which gradually brings 
the others to its level — which is, therefore, wholly independ- 
ent of the will of the capitalist 

It must be noted here, that this same law rules also those 
spheres of production, whose product passes neither directly 
nor indirectly into the consumption of the laborers or into the 
conditions under which their necessities are produced ; it ap- 
plies, therefore, also to those spheres of production, in which 
no cheapening of commodities can increase the relative sur- 
plus-value or cheapen labor-power. (It is true that a cheap- 
ening of constant capital may increase the rate of profit in all 
these lines while the exploitation of the laborer remains the 
same.) As soon as the new mode of production begins to ex- 
pand, and thereby to furnish the tangible proof that these com- 
modities can actually be produced more cheaply, the capitalists 
working under the old methods of production must sell their 
product below their full prices of production, because the value 
of these commodities has fallen, because the labor time re- 
quired by these capitalists for the production of these com- 
modities is longer than the social average. In one word — 
this appears as the effect of competition — these capitalists 
are compelled to introduce the new method of production, 
under which the proportion of the variable to the constant 
capital has been reduced. 

All circumstances, which bring about the cheapening of 
commodities by the employment of improved machinery 
amount in the last analysis to a reduction of the quantity of 
labor absorbed by the individual commodities ; in the second 
place, to a reduction of the wear and tear portion of machinery 
transferred to the value of the individual commodity. To the 
extent that the wear and tear of machinery is less rapid, it is 
distributed over more commodities and displaces more living 
labor during its period of reproduction. In both cases the 
quantity and value of the fixed constant capital are increased 
over those of the variable capital. 

" All other things being equal, the power of a nation to 
save from its profits varies with the rate of profits, is great 



312 Capitalist Production. 

when they are high, less, when low ; but as the rate of profit 
declines, all otlier things do not remain equal. ... A 
low rate of profit is ordinarily accompanied by a rapid rate of 
accumulation, relatively to the numbers of the people, as in 
England ... a high rate of profit by a slower rate of 
accumulation, relatively to the numbers of the people." Ex- 
amples: Poland, Russia, India, etc. (Richard Jones, An 
Introductory Lecture on Political Economy, London, 1833, p. 
50ff.) Jones emphasises correctly that in spite of the falling 
rate of profit the inducements and faculties to accumulate are 
augmented ; first, on account of the growing relative overpop- 
ulation ; secondly, because the growing productivity of labor is 
accompanied by an increase in the mass of use-values produced 
by the same exchange value, that is, an increase in the mate- 
rial elements of capital, thirdly, because the lines of produc- 
tion become more varied ; fourthly, because the credit system, 
stock companies, etc., are developed, and with them the facility 
of converting money into capital without becoming an indus- 
trial capitalist ; fifthly, because the wants and the greed for 
wealth increase ; sixthly, because the mass of investments in 
fixed capital grows ; etc. 



The following three principal facts of capitalist produc- 
tion must be kept in mind : 

1) Concentration of means of production in a few hands, 
whereby they cease to appear as the property of the immediate 
laborers and transform themselves into social powers of pro- 
duction. It is true, they first become the private property of 
capitalists. These are the trustees of bourgeois society, but 
they pocket the proceeds of their trusteeship. 

2) Organisation of labor itself into social labor, by social 
co-operation, division of labor, and combination of labor witli 
natural sciences. 

In both directions, the capitalist mode of production 
abolishes private property and private labor, even though it 
does so in contradictory forms. 

3) Creation of the world market. 

The stupendous productive power developing under the cap- 



Internal Contradictions. 313 

italist mode of production relatively to population, and the 
increase, though not in the same proportion, of capital values 
(not their material substance), which grow much more rapidly 
than the population, contradict the basis, which, compared to 
the expanding wealth, is ever narrowing and for which this 
immense productive power works, and the conditions, under 
which capital augments its value. This is the cause of crises. 



PART IV. 

TEAXSFORMATIOlNr OF COMMODITY-CAPITAL 
AXD MONEY-CAPITAL INTO COMMEECIAL 
CAPITAL AND FINANCIAL CAPITAL (MER- 
CHANT'S CAPITAL). 



CHAPTER XVL 



COMMERCIAL CAPITAL. 



Merchant's capital, or trading capital, consists of two sub- 
divisions, namely commercial capital and financial capital, 
which we shall now proceed to define more in detail, so far as 
is necessary for the analysis of capital in its innermost struc- 
ture. This is so much the more needed, as modern political 
economy, even in its best representatives, indiscriminately 
mixes trading capital with industrial capital and wholly over- 
looks the characteristic peculiarities of the former. 

The movements of commodity-capital have been analysed in 
volume II. The total capital of society exists always in part 
in commodities on the market about to be converted into 
money, and this part is naturally made up of ever changing 
elements and is continually changing in quantity. Another 
part exists as money on the market, ready to be converted into 
commodities. These portions of the total capital are per- 
petually passing through these metamorphoses. To the ex- 
tent that this function of capital in the process of circulation 
becomes a special function of independent capital and becomes 
an established service assigned by division of labor to some 
particular species of capitalists, the commodity-capital becomes 
commercial or financial cajiital. 

314 



Commercial Capital. 315 

In volume II, chapter VI, under the head of cost of cir- 
culation, 2 and 3, we have explained to what extent the trans- 
portation industry, the storage and distribution of commodi- 
ties in a distributable form, may be regarded as processes of 
production continuing within the process of circulation. 
These incidents in the cifculation of commodity-capital are 
sometimes confounded with the peculiar functions of commer- 
cial or financial capital. It is true that the peculiar functions 
of these last-named forms of capital are sometimes practically 
combined with those incidental ones, but with the advancing 
development of social division of labor the functions of mer- 
chant's capital evolve into a distinct type and are separated 
from those real functions connected with those incidents in 
circulation. For our present purpose, which is to define the 
specific difference of this special form of capital, we must 
leave aside those other functions as irrelevant. So far as 
capital employed only in the process of circulation, such as 
commercial capital, combines at times those other functions 
with its specific ones, it does not appear in its typical form. 
We do not get its pure type, until we strip it of all incidental 
functions. 

We have seen that the existence of capital in the shape of 
commodity-capital and tlie metamorphoses through which it 
passes within the sphere of circulation in its capacity as com- 
modity-capital on the market — a series of metamorphoses ex- 
pressed by buying and selling, conversion of commodity-capi- 
tal into money-capital and money-capital into commodity- 
capital — form a phase in the process of reproduction of in- 
dustrial capital, that is, a phase in its process of production as 
a whole. But we have also seen at the same time that it is 
distinguished in its function as capital of circulation from its 
function as productive capital. These are two different and 
separate forms of existence of the same capital. One portion 
of the total social capital is continually on the market in the 
form of capital of circulation, passing through those meta- 
morphoses. For each individual capital, however, its exist- 
ence as commodity-capital, and its metamorphoses in this 
form, represent merely ever vanishing and ever renewed points 



3i6 Capitalist Production. 

of transition, stages of transition in the continuity of its proc- 
ess of production. And the elements of commodity-capital 
on the market vary continually, being perpetually withdrawn 
from the market and just as perpetually returned to it as 
new products of tlie process of production. 

Commercial capital is nothing else but a changed form of 
a portion of this capital of circulation, which exists contin- 
ually on the market in the process of its metamorphoses within 
the sphere of circulation. We say explicitly, a portion, be- 
cause a portion of the selling and buying of commodities takes 
place between the industrial capitalists themselves. We leave 
this portion entirely out of consideration in this analysis, be- 
cause it contributes nothing to the definition of the concept, 
or to the understanding of the specific nature, of merchant's 
capital. Moreover, it has been exhaustively treated in vol- 
ume II. 

The dealer in commodities, as a capitalist, appears first on 
the market as the representative of a certain sum of money, 
which he advances in his capacity as a capitalist. lie de- 
sires to transform this sum of money from its original value 
X into X -j- &x, that is, the original sum plus his profit. But 
it is evident that his capital must first enter the market in the 
shape of money, not only on account of his capacity as a cajn- 
talist in general, but also as a trader in commodities in par- 
ticular. For he does not produce any commodities. He 
merely trades in them, he acts as middleman in their move- 
ments, and in order to be able to trade in them, he must first 
buy them, must be the owner of money-capital. 

Take it that a trader in commodities owns 3,000 p.st., which 
he invests as a trading capital. He bu}S with these 3,000 
p.st., say, 30,000 yards of linen from some linen manufac- 
turer, at 2 sh. per yard. Then he sells his 30,000 yards. If 
the annual average rate of profit is 10%, and if he makes a 
profit of 10% after deducting all incidental expenses, then 
he has converted his 3,000 p.st. into 3,300 p.st. at the end of 
one year. How he makes this profit is a question which we 
shall discuss later. At this place we merely intend to observe 
the form, which the movements of his capital take. He con- 



Commercial Capital. 317 

tinually buys with his 3,000 p.st. linen and sells this linen ; he 
continually repeats this operation of buying for the purpose 
of selling, M — C — M', the simple form of capital confined 
entirely to the sphere of circulation and not interrupted by 
the intervention of the process of production, which lies out- 
side of its own movement and function. 

What, then, is the relation of this commercial capital to the 
commodity-capital representing a mere passing phase of in- 
dustrial capital ? So far as the linen manufacturer is con- 
cerned, he has realised the value of his linen with the money of 
the merchant. He has thereby completed the first phase in the 
metamorphosis of commodity-capital, its conversion into 
money, and lie can now, provided that circumstances remain 
the same, proceed to reconvert this money into yarn, coal, 
wages, etc., or into means of existence, etc., for the consump- 
tion of his revenue. Leaving aside the spending of his rev- 
enue, he can continue his process of production. 

But while the sale of the linen, its metamorphosis into 
money, has taken place so far as its direct producer is con- 
cerned, it has not yet taken place so far as the linen itself is 
concerned. It is still on the market as a commodity-capital 
and awaits the completion of its first metamorphosis, awaits 
its sale. Nothing has happened to this linen but a change in 
the person of its owner. From the point of view of its own 
destination, of its position in the process, it is still a com- 
modity-capital, a saleable commodity; only, it is now in the 
hands of the merchant instead of those of the manufacturer. 
The function of selling it, of serving as an agent in the first 
phase of its metamorphosis, has been transferred from the 
manufacturer to the merchant, has been converted into the 
particular business of the merchant, while it used to be a func- 
tion, which the producer had to perform after completing the 
process of its production. 

'Now let us assume that tlie merchant would not succeed in 
disposing of those 30,000 yards of linen during the interval, 
which the linen manufacturer requires for the production of 
another lot of 30,000 yards and its marketing at 3,000 p.st. 
In that case, the merchant cannot buy this new lot, because 



3i8 Capitalist Production. 

he still has the old stock of 30,000 yards on hand, which he 
has not yet reconverted into money-capital. A stagnation 
then ensues, an interruption of reproduction. Of course, the 
linen manufacturer might have some additional money-capital 
in reserve, which he might convert into productive capital in- 
dependently of the sale of those 30,000 yards of linen, in order 
to continue his process of production. But this assumption 
would not alter the matter. So far as the capital tied up in 
the 30,000 yards of linen is concerned, its process of repro- 
duction is and remains interrupted. Here we see indeed very 
clearly, that the operations of the merchant are really nothing 
but operations which must be performed under all circum- 
stances in order to convert the commodity-capital of the pro- 
ducer into money-capital, operations, which promote the func- 
tions of the commodity-capital in the process of circulation 
and reproduction. If a clerk of the producer were to attend 
exclusively to the sale, and also with the purchase, instead of 
an independent merchant, this connection would not be ob- 
scured for a moment. 

Commercial capital, then, is nothing but the commodity- 
capital of the producer, which has to pass through its trans- 
formation into money and to perform its function of commod- 
ity-capital on the market. The difference is only that this in- 
cidental function of the producer is now established as the ex- 
clusive business of a special kind of capitalists, of merchants, 
and becomes the independent business of a special investment 
of capital. 

This is furthermore shown in the specific fonn of the circu- 
lation of commercial capital. The merchant buys a commod- 
ity and then sells it : M — C — M'. In the simple circula- 
tion of commodities, or even in tlie circulation of commodities 
as it appears when a process of circulation of industrial cap- 
ital, C — M — C, circulation is promoted by the circum- 
stance that every piece of money changes hands twice. The 
linen manufacturer sells his commodity, the linen, converts 
it into money ; the money of the buyer passes into his hands. 
With this money he buys yarn, coal, labor, etc., he spends the 
same money for the purpose of reconverting the value of linen 



Commercial Capital. 319 

into those commodities which form the elements of production 
of linen. The commodity which he buys is not the same kind 
of commodity which he sells. He has sold products and bought 
means of production. But it is different with the movements 
of commercial capital. With his 3,000 p.st., the linen mer- 
chant buys 30,000 yards of li*nen. He sells the same linen 
for the purpose of recovering his money-capital (increased by 
profits) from the circulation. It is not the same pieces of 
money which here change places twice, but the same commodi- 
ties ; the linen passes from the seller into the hands of the 
buyer, and from the hands of the buyer, who becomes a seller, 
into those of another buyer. It is sold twice, and it may be 
sold still oftener, if a series of other merchants intervenes. 
And it is precisely through this repeated sale, this twofold 
change of place of the same commodity^ that the money ad- 
vanced by its first buyer for its purchase is recovered, its re- 
tiax to him promoted. In the case of C^ — M — C the twofold 
change of place of the same money assists in the sale of one 
form of commodities and the purchase of another form. In 
the other case, M — C — M', the twofold change of place of 
the same commodity assists in the recovery of the advanced 
money from the circulation. This shows that the commodity 
has not been definitely sold, when it has passed from the hands 
of the producer into those of the merchant, and that the latter 
merely continues the operation of selling — or promotes the 
functions of commodity-capital. But it shows at the same 
time that the operation C — M, which represents for the pro- 
ductive capitalist a mere function of his capital in its tran- 
sient form of commodity-capital, constitutes for the merchant 
the movement M — C — M', that is, a specific utilisation of 
his advanced money-capital. A phase in the metamorphosis 
of commodities here shows itself, with reference to the mer- 
chant, in the form of M — C — M', that is, as the evolution 
of a separate kind of capital. 

The merchant sells his commodity, in this case the linen, 
definitely to the consumer, whether it be a productive con- 
sumer (for instance, a bleacher), or an individual consumer 
who uses the linen for his private needs. By this means the 



320 Capitalist Production. 

merchant recovers his advanced capital (with a profit), and he 
can then repeat his operation. If the money had served 
merely as a means of payment, when the merchant bought the 
linen from the manufacturer, for instance, if the merchant 
would not have had to make payment until after six weeks, 
he might be able to pay the manufacturer without even ad- 
vancing any money-capital of his own. But if he should not 
have sold the goods at the end of six weeks, he would have to 
advance his 3,000 p.st. on the date of the expiration, instead 
of advancing them on delivery of the linen. And if a fall 
in the market-price should have compelled him to sell below 
his purchase price, he would have to make good the loss out of 
his own capital. 

N^ow, what is it that lends to commercial capital the char- 
acter of an independently operating capital, while in the hands 
of the producer who does his own selling, it is obviously merelv 
a special forai of his capital in some particular phase of his 
process of reproduction, during its sojourn in the sphere of 
circulation ? 

1) It is, in the first place, the fact that the commodity- 
capital completes its definite conversion into money, its first 
metamorphosis, its function on the market in its capacity 
as commodity-capital, in the hands of another agent than the 
producer, and that this function of commedity-capital is pro- 
moted by the operations of the merchant, by his buying and 
selling, so that these transactions constitute themselves into 
a separate and independent business distinct from the other 
functions of industrial capital. Through it a portion of a 
function, which used to be performed in circulation as a spe- 
cial phase of the process of reproduction, is molded into the 
exclusive function of an independent agent of the circulation 
distinct from the producer. But this alone ^vould not be 
enough to give to this special business the aspect of a function 
of an independent capital distinct from the industrial capital 
in process of self-expansion. In fact, it does not assume this 
aspect in cases Avhere the trade in commodities is carried on by 
traveling agents, or by other direct agents of the industrial cap- 



Commercial Capital. 321 

italist. Another element is necessary to complete its special 
character. 

2) This second element is introduced by the fact that the 
independent agent of circulation, the merchant, advances 
money-capital (his own or borrowed) in this position. The 
transaction which amounts for the industrial capital in process 
of reproduction merely to C — M, to a conversion of commod- 
ity-capital into money-capital, to a mere sale, assumes for the 
merchant the form M — C — M', purchase and sale of the 
same commodity, and thus to a reflux, by means of a sale, of 
the money-capital expended in a purchase. 

It is always C — M, the conversion of commodity-capital 
into money, which assumes for the merchant the form of 
M — C — M, whenever he advances money for the purchase 
of commodities from their producers; it is always the first 
metamorphosis of commodity-capital, although the same trans- 
action may amount for a producer, or for industrial capital 
in process of reproduction, to M — C, a reconversion of money 
into commodities (means of production), the second phase of 
this metamorphosis. For the linen producer, the first meta- 
morphosis was C — M, the conversion of commodity-capital 
into money-capital. This transaction amounts for the mer- 
chant to M — C, the conversion of his money-capital into 
commodity-capital. !N^ow^, if he sells this linen to a bleacher, it 
means M — C, conversion of money-capital into productive 
capital, for the bleacher, which represents the second meta- 
morphosis of his commodity-capital ; while it means C — M, 
the sale of the linen, for the merchant. Actually the com- 
modity-capital manufactured by the producer has now been 
definitely sold. This transaction, M — C — M, on the part 
of the merchant represents but the action of a middleman for 
the transaction C — M between two producers. Or let us as- 
sume, that the linen manufacturer buys wdth a portion of the 
value of the sold linen some yarn from a yarn dealer. This 
is M — C for him. For the merchant selling the yarn it is 
C — M, resale of the yarn. So far as the yarn itself is con- 
cerned, in its capacity of commodity-capital, it amounts to 



2^22 Capitalist Production. 

its definite sale, its transition from the sphere of circulation 
into the sphere of production by means of C — M, the definite 
conclusion of its first metamorphosis. Whether the merchant 
buys from the industrial capitalist, or sells to him, the cir- 
culation of his merchant's capital, M — C — M, always ex- 
presses but the same thing, which constitutes, from the point 
of view of the commodity-capital itself, a form of transition 
of the industrial capital in process of reproduction, C — M, 
the mere completion of its first metamorphosis. The M — C 
of the merchant's capital amounts only for the industrial cap- 
italist to C — M, but not for the commodity-capital produced 
by him. It is but the transfer of the commodity-capital from 
the hands of the industrial capitalist to those of the agent of 
circulation; Kot until the merchant's capital closes the trans- 
action C — M does commodity-capital as such perform its 
final C — M. M — C — M amounts merely to two times 
C — M on the part of the same commodity-capital, two suc- 
cessive sales of it, which promote its last and final sale. 

It is evident, then, that commodity-capital assumes in com- 
mercial capital the form of an independent class of capital 
through the fact that the merchant advances money-capital. 
This money-capital serves its purpose as capital only by at- 
tending exclusively to the conversion of commodity-capital 
into money-capital, and it accomplishes tliis by the continual 
purchase and sale of commodities. This is its exclusive work. 
This promotion of the process of circulation of industrial cap- 
ital is the exclusive function of the money-capital with which 
the merchant operates. By means of this function he con- 
verts his money into money-capital, molds his M into M — 
C — M', and by the same process he converts commodity-cap- 
ital into commercial capital. 

So long and so far as commercial capital exists in the form 
of commodity-capital, from the point of view of the process of 
reproduction of the total social capital, it is obviously nothing 
else but that portion of the industrial capital in process of 
metamorphosis, which is still on the market and serves as 
commodity-capital. It is therefore only the money-capital 
advanced by the merchant, which is exclusively destined for 



Couimercial Capital. 323 

purchase and sale and for this reason never assumes any other 
form but that of commodity-capital and money-capital, always 
remaining confined to the sphere of circulation. It is only 
this money-capital which is now to be analysed wath reference 
to the entire process of reproduction of capital. 

As soon as the producer, the linen manufacturer has sold 
his 30,000 yards of linen to the merchant for 3,000 p.st., he 
buys with the money so obtained the necessary means of 
production, and his capital re-enters the process of production ; 
his process of production continues without interruption. So 
far as he is concerned, the conversion of his commodity into 
money has been accomplished. But we have already seen that 
the linen itself has not yet closed its metamorphosis. It has 
not yet been definitely reconverted into money, it has not yet 
passed as a use-value into productive or individual con- 
sumption. The linen merchant now represents on the market 
the same commodity-capital, which the linen manufacturer rep- 
resented originally. So far as the manufacturer is concerned, 
the process of transformation has been abbreviated, but only 
to be continued through the hand of the merchant. 

If the linen producer had to wait, imtil his linen had 
really ceased being a commodity, until it had actually passed 
into the hands of its final purchaser for productive or indi- 
vidual consumption, his process of reproduction would be in- 
terrupted. Or, if he did not wish to interrupt it, he would 
have had to restrict his operations, to transform a smaller por- 
tion of the value of his linen into yarn, coal, labor, etc., in 
short, into the elements of productive capital, and to hold 
back a larger portion of it as a money-reserve. While one 
portion of his capital would then be on the market in the 
shape of commodities, another would be enabled to continue 
in the process of production. In this way, one portion would 
return in the shape of money, while another would be going to 
market in the form of commodities. This division of capital 
of the individual producer is not abolished by the intervention 
of the merchant. But without it that portion of the capi- 
tal of circulation which is held as a money reserve would 
have to be always greater in proportion than the portion em- 



324 Capitalist Production. 

ployed as productive capital, and the scale of production would 
have to be restricted accordingly. Instead of that, the pro- 
ducer is now enabled to employ a larger portion of his capital 
continually in the process of production itself, and a smaller 
portion as a money reserve. 

This is offset on the other hand by the fact that another 
portion of the social capital, in the shape of merchant's cap- 
ital, is held continually within the sphere of circulation. It 
is employed for no other purpose but that of buying and sell- 
ing. There seems then to have been no other change but that 
of the persons who hold this capital in their hands. 

If the merchant, instead of buying 3,000 p.st.'s worth of 
linen with the intention of selling it again, were to employ 
these 3,000 p.st. productively himself, then the productive 
capital of society would be increased. It is true, that the 
linen producer would then have to hold back a larger portion 
of his capital as a money reserve, and likewise the merchant 
who has now been transformed into an industrial capitalist. 
On the other hand, if the merchant were to remain a mer- 
chant the producer would save time in selling which he could 
employ for the supervision of the process of production, while 
the merchant would have to devote his whole time to selling. 

If the merchant's capital does not exceed its necessary pro- 
portions, it may be assumed 

1) that as a result of division of labor, the capital devoted 
exclusively to buying and selling (and this includes not only 
the money required for the purchase of commodities, but also 
the money which must be invested in the labor required for 
running the business of the merchant, in the constant capital 
of the merchant, store rooms, transportation, etc.) is smaller 
than it would be, if the industrial capitalist had to carry on 
the entire commercial part of his business himself; 

2) that the exclusive occupation of the merchant with this 
business enables the producer to convert his commodities more 
rapidly into money, and permits the commodity-capital itself 
to pass more quickly through its metamorphosis, than it would 
in the hands of the producer; 

3) that looking upon the entire merchant's capital in pro- 



Commercial Capital. 325 

portion to the industrial capital, one turn-over o-f the mer- 
chant's capital may represent not only the turn-overs of many 
capitals in one sphere of production, but the turn-overs of a 
number of capitals in different spheres of production. The 
first is the case when the linen merchant, after buying with 
his 3,000 p. St. the product of some linen producer, sells it 
before the same producer can bring another lot of the same 
quantity to market, so that the linen merchant has to buy the 
product of another, or several other, linen manufacturers. 
When he sells this, he promotes the turn-overs of different 
capitals in the same sphere of production. The second is the 
case, if the merchant, after selling his linen, buys, for in- 
stance, some silk. In this way he promotes the turn-overs of 
capitals in different spheres. 

In general it may be noted that the turn-over of the indus- 
trial capital is not limited merely by the time of circulation, 
but also by the time of production. The turn-over of mer- 
chant's capital, so far as it deals in one sort of commodities, 
is limited, not merely by the turn-over of one industrial cap- 
ital, but by the turn-overs of all industrial capitals in the 
same line of production. After the merchant has bought and 
sold the linen of one producer, he can buy and sell that of 
another, before the first can bring another lot of his product 
on tlie market. The same merchant's capital may, therefore, 
promote successively the different turn-overs of the industrial 
capitals invested in a certain line of production. Its turn- 
over is therefore not identified with the turn-overs of one sole 
industrial capital, but with the turn-overs of many, and it 
does not take the place of but one money reserve, which one 
single industrial capitalist would have to hold back. The 
turn-over of the merchant's capital in one sphere of produc- 
tion is naturally determined by the total production of that 
sphere. But it is not determined by the limits of production 
or the time of turn-over of any single capital of the same 
sphere, so far as its time of turn-over is determined by its time 
of production. For instance, let us assume that A supplies 
a commodity, which requires three months for its production. 
After the merchant has bought and sold it, say, in one month, 



326 Capitalist Production. 

he can buy and sell the same product of some other producer. 
Or, after he has sold, say, the corn of some farmer, he can 
buy with the same money that of another and another, etc. 
The turn-over of his capital is limited- by the mass of corn, 
which he can buy successively in a certain time, for instance, 
in one year, while the capital of the farmer is limited in its 
turn-over, aside from the time of circulation, by the time of 
production, which lasts one year. 

However, the turn-over of the same merchant's capital may 
promote equally well the turn-overs of capitals in different 
lines of production. 

To the extent that the same merchant's capital serves in 
different turn-overs to transform different commodity-capitals 
successively into money, buying and selling them one after 
another, it performs in its capacity as money-capital the same 
function with regard to the commodity-capital, which money 
in general performs by means of its turn-overs within a cer- 
tain period with regard to commodities. 

The turn-over of merchant's capital is not identical with 
the turn-over or with one single reproduction of one industrial 
capital of the same size ; it is rather equal to the sum of the 
turn-overs of a number of such capitals, either in the same, 
or in different spheres of production. The quicker mer- 
chant's capital is turned over, the smaller is that portion of 
the total money-capital, which serves as merchant's capital; 
the slower it is turned over, the larger is that same portion. 
The more undeveloped production is, the larger is the sum of 
merchant's capital as compared to the sum of the commodities 
thrown into circulation; but so much smaller is it absolutely, 
or compared with more developed conditions. Vice versa, the 
opposite holds good. In such undeveloped conditions the 
greater part of the strict money-capital is in the hands of the 
merchants, whose wealth constitutes the money wealth as com- 
pared to the wealth of others. 

The velocity of the circulation of the money-capital ad- 
vanced by the merchant depends: 1) on the velocity with 
which the process of production is renewed and the different 



Commercial Capital. 327 

processes of production are linked together; 2) on the ve- 
locity of consumption. 

It is not necessary that merchant's capital should pass 
merely through the above mentioned turn-over, by first buy- 
ing commodities to its full amount and then selling them. 
The merchant may make both movements at the same time. 
His capital is then divided into two parts. One of them con- 
sists of commodity-capital, the other of money-capital. Here 
he buys and converts his money into commodities. There he 
sells and converts another part of his commodity-capital into 
money. On one side, his capital returns in the shape of 
money-capital, on the other it returns in the shape of commod- 
ity-capital. The larger the portion assuming one shape, the 
smaller the portion assuming another. This alternates and bal- 
ances itself. If money is not employed merely as a medium of 
circulation, but also as a means of payment and in conjunction 
with the credit system, which develops along with it, then the 
money portion of the merchant's capital is reduced still more 
in proportion to the volume of the transactions promoted by the 
merchant's capital. If I buy 1,000 p.st.'s worth of wine on 
three months' credit, and sell all the wine for cash before the 
expiration of the three months, then I do not need to ad- 
vance one penny for these transactions. In this case it is 
quite obvious that the money-capital, which here serves as 
merchant's capital, is nothing but industrial capital itself in 
the shape of money-capital, in process of reflux to itself in 
the shape of money. (The fact that the producer who sold 
1,000 p.st.'s worth of wine on three months' credit may dis- 
count his note, which is a certificate of indebtedness of the 
buyer, at some bank does not alter the matter and has nothing 
to do with the capital of the merchant.) If market-prices 
should fall in the mean time by y^-q, the merchant would not 
only make no profit, but would recover only 2,700 p.st. in- 
stead of 3,000 p.st. He would then have to put up 300 p.st. 
out of his own pocket. These 300 p.st. serve merely as a re- 
serve for balancing the difference in price. But the same ap- 
plies to the producer. If he had sold at falling prices, he 



328 Capitalist Production. 

"would likewise have lost 300 p.st., and could not begin pro- 
duction on the same scale without reserve capital. 

The linen merchant buys 3,000 p.st.'s worth of linen from 
the manufacturer. The manufacturer uses 2,000 p.st. of the 
3,000 to buy yarn. He buys this yarn from a yarn dealer. 
The money with which the manufacturer pays the yarn 
dealer does not belong to the linen dealer. For the latter 
has received commodities to this amount. It is the money- 
form of the manufacturer's own capital. In the hands of the 
yarn dealer these 2,000 p.st. now appear as returned money- 
capital. But to what extent are they so, in what respect do 
they differ from the 2,000 p.st. representing the discarded 
money-form of the linen and the assumed money-form of the 
yarn ? If the yarn dealer bought on credit and sold for cash 
before the expiration of his time, then these 2,000 p.st. do not 
contain one penny of merchant's capital as distinguished from 
the money-form, which the industrial capital itself assumes 
in the course of its circulation. The commercial capital then, 
so far as it is not a mere form of industrial capital, held in 
the hands of the merchant in the shape of commodity-capital 
or money-capital, is nothing but that portion of the money- 
capital which belongs to the merchant himself and is circu- 
lated by the purchase and sale of commodities. This portion 
represents on a reduced scale that part of the capital advanced 
for production, which must always be in the hands of the in- 
dustrial as a money reserve, medium of purchase, and which 
would always have to circulate as money-capital. This por- 
tion, in a reduced scale, is now in the hands of capitalist mer- 
chants, and performs its functions only in the process of cir- 
culation. It is that portion of the total capital which, aside 
from expenditures of revenue, must continually circulate on 
the market as a medium of purchase in order to maintain the 
continuity of the process of reproduction. This portion is so 
much smaller in comparison to the total capital, the more rap- 
idly the process of reproduction takes place, and the more de- 
veloped the function of money as a means of payment, that 
is, of the credit-system.^^ 

'' Jn order to be able to classify merchant's capital as a productive capital. 



Commercial Capital. 329 

Merchant's capital is simply capital performing its func- 
tions in the sphere of circulation. The process of circulation 
is a phase of the total process of reproduction. But no value 
is joroduced in the process of circulation, and, therefore, no 
surplus-value. [N^othing takes place there but changes of form 
of the same mass of values. In fact, nothing occurs there but 
the metamorphosis of commodities, and this has nothing to do 
either with the creation or with the transformation of values. 
If surplus-value is realised by the sale of the produced com- 
modities, it is only because that surplus-value already existed 
in them. In the second act, the reconversion of money-capital 
into commodities (elements of production), the buyer does 
not realise any surplus-value. He merely inaugurates the 
production of surplus-value by the exchange of his money for 
means of production and labor-jDower. So far as these meta- 
morphoses cost time of circulation — a time, during which 
capital is not producing at all, least of all surplus-value — 
they limit the creation of values, and the surplus-value will 
express itself through the rate of jDrofit precisely in an inverse 
ratio to the duration of the time of circulation. Merchant's 
capital, therefore, does not create any value or surplus-value, 

Ramsay confounds it with the transportation industry and calls commerce " the 
transport of commodities from one place to another." (,An Essay on the Distribu- 
tion of Wealth, p. 19.) The same mistake was committed by Verri in his Medi- 
tasionisuW Economic Politico, § 4, and by Say in his Traite d'Economie Politique, I, 
14, 15. In his Elements of Political Economy, J. P. Newman says: " In the existing 
economical arrangements of society, the very act which is performed by the 
merchant of standing between the producer and the consumer, advancing to the 
former capital and receiving products in return, and handing over these products 
to the latter, receiving back capital in return, is a transaction which both facilitates 
the economical process of the community, and adds value to the products in rela- 
tion to which it is performed (P. 174)." The producer and the consumer thus 
save time and money through the intervention of the merchant. This service 
requires an advance of capital and labor, and must be rewarded, " since it adds 
value to the products, for the same products, in the hands of the consumers, 
are worth more than in the hands of the producers." And so commerce appears 
to him, as it does to Mr. Say, as " strictly an act of production " (P. 175). This 
view of Newman is fundamentally wrong. The M.j^-value of a commodity is greater 
in the hands of the consumer than in those of the producer, because it is realised 
by the consumer. For the use-value of a commodity does not serve its end until 
this commodity enters the sphere of consumption. So long as it is in the hands 
of the producer, it exists only potentially. But one does not pay twice for a 
commodity, one does not pay first for its exchange value, and then an extra price 
for its use-value. By paying for its exchange-value, I appropriate its use-value. 
And its exchange value is not in the least increased by transferring it from the 
hand of the producer or middleman to that of the consumer. 



330 Capitalist Production. 

at least not directly. If it contributes toward shortening the 
time of circulation, it may help indirectly to increase the sur- 
plus-value produced by the industrial capitalists. To the ex- 
tent that it helps to expand the market and promotes the di- 
vision of labor between capitals, thereby enabling capital to 
work on a larger scale, its function enhances the productivity 
of the industrial capital and the accumulation of this capital. 
Inasmuch as it may shorten the time of circulation, it raises 
the ratio of surj^lus-value to the advanced capital, that is, the 
rate of profit. And to the extent that it confines a smaller 
portion of capital in the form of money-capital to the sphere 
of circulation, it increases that portion of capital which is en- 
gaged directly in production. 



CIIAPTEE XVII. 



COMMERCIAL PROFIT. 



We have seen in volume II, that the mere functions of capital 
in the sphere of circulation — the operations which the in- 
dustrial capitalist must perform, first, in order to realise the 
value of his commodities, and secondly, in order to reconvert 
this value into elements of production, operations which pro- 
mote the metamorphosis of the commodity-capital C — M — 
C, the acts of selling and buying — produce neither value 
nor surplus-value. It was rather seen that the time required 
for this purpose, objectively so far as the commodities, sub- 
jectively so far as the capitalist is concerned, creates barriers 
to the production of value and surplus-value. What is true 
of the metamorphosis of commodity-capital in general, is, as 
a matter of course, not in the least altered by the fact that a 
part of it may assume the shape of commercial capital, or 
that the operations, by which the metamorphosis of commod- 
ity-capital is promoted, may become the particular business of 
a special class of capitalists, or the exclusive function of a por- 
tion of the money-capital. If selling and buying of com- 



Commercial Profit. 331 

modities — and that is what the metamorphosis of the com- 
modity-capital C — M — C amounts to — by the industrial 
capitalists themselves do not create any value or surplus-value, 
they will certainly not become creators of value by being trans- 
ferred from the industrial capitalists to other persons. Fur- 
thermore, if that portion of the total social capital, which must 
be continually on hand in order that the process of reproduc- 
tion, instead of being interrupted, may proceed continuously 
— if this money-capital does not create any value or surplus- 
value, then it cannot acquire the faculty to do so by being con- 
tinually thrown into circulation for the performance of its 
function by some other section of the capitalists than the in- 
dustrial capitalists. We have already indicated to wdiat ex- 
tent merchant's capital may be indirectly productive, and we 
shall discuss this point more at length later on. 

Commercial capital, then — stripped of all heterogeneous 
functions, such as storing, expressing, transporting, distrib- 
uting, arranging, which may be connected with its true func- 
tion of buying in order to sell — creates neither value nor 
surplus-value, but promotes only their realisation and thereby 
the actual exchange of commodities,»their transfer from one 
hand to the other, the social circulation of matter. Never- 
theless, since the circulating phase of industrial capital is as 
much a phase of the process of reproduction as production is, 
the capital performing its functions independently in the 
process of circulation must yield the average annual profit 
just as well as the capital performing its functions in the 
different lines of production. If merchant's capital were to 
yield a higher percentage of average profit than industrial 
capital, then a portion of the industrial capital would trans- 
form itself into merchant's capital. If this capital were to 
yield a lower average profit, then the opposite process would 
take place. A portion of the merchant's capital would trans- 
form itself into industrial capital. ISTo species of capital en- 
joys a greater facility to change its occupation than merchant's 
capital. 

Seeing that merchant's capital itself does not produce any 
surplus-value, it is evident that surplus-value appropriated by 



332 Capitalist Production. 

it in the shape of average profit must be a portion of the sur- 
plus-value produced by the total productive capital. But the 
question is now: How does the merchant's capital manage 
to appropriate its share of the surplus-value or profit produced 
by the productive capital ? 

It is only outward semblance that commercial profit is a 
mere addition to, a nominal raise of the prices of com- 
modities above their value. 

It is evident that the merchant can draw his profit only out 
of the price of the commodities sold by him, more even, that 
this profit, which he makes by the sale of his commodities, 
must be equal to the difference between his purchase price and 
his selling price, equal to the excess of the latter over the 
former. 

It is possible, tliat additional costs (costs of circulation) 
may enter into the commodities after their purchase and be- 
fore their sale, and it is also possible, that this may not 
happen. If such costs should be added, it is evident that the 
excess of the selling price over the purchase price does not 
represent merely profit. In order to simplify the analysis, we 
assume first, that no such costs are added. 

For the industrial capitalist, the difference between the 
selling price and the purchase price of his commodities is 
equal to the difference between their price of production and 
their cost-price, or, looking upon the matter from the point of 
view of the total social capital, equal to the difference between 
the value of the commodities and their cost-price for the cap- 
italists, and this again resolves itself into the difference be- 
tween the total quantity of labor incorporated in them and the 
quantity of the paid labor incorporated in them. Before the 
commodities bought by the industrial capitalist are taken back 
to market as saleable commodities, they pass through the proc- 
ess of production, in which that portion of tlieir price which 
shall be realised as profit must be created. But it is different 
with the trading merchant. The commodities are in his hands 
only so long as they are in the process of circulation. He 
merely continues their sale, the realisation of their price be- 
gun by the productive capitalist, and therefore he does not 



Commercial Profit. 333 

cause them to pass through any intermediate process, in which 
they can once more absorb new surplus-value. While the in- 
dustrial capitalist merely realises the previously produced 
surplus-value or profit by means of the circulation, the mer- 
chant must not only realise his profit in and by the circulation, 
but he must first make it there. This seems possible in no 
other way than that of selling the commodities bought by him 
from the industrial capitalist at their prices of production, or, 
from the point of view of the total commodity-capital, their 
values, above their prices of production, by making a nominal 
addition to these prices, in other words by selling the total 
commodity-capital above its value and pocketing this excess of 
their nominal value over their real value. In short, it seems 
that he would be selling them for more than they are worth. 

This method of raising prices seems easy to gTasp. For in- 
stance, one yard of linen costs 2 sh. If I want to make 10% 
profit on my sales, I must add y-g- to the price, I must sell 
one yard of linen at 2 sh. 2fd. The difference between its 
actual price of production and its selling price is then 2fd. 
and this represents a profit of 10% on 2 sh. This amounts to 
my selling one yard of linen to the buyer at a price which is in 
reality the price of l-^^ yard. Or, what amounts to the same, 
it is as though I sold to the buyer only yy of one yard for 2 
sh. and kept yj- for myself. In fact, I might buy back y^ of 
one yard for 2f d., if the price of one yard is 2 sh. 2f d. This 
would be but a round-about way of sharing in the surplus- 
value and surplus-product by a nominal raise in the price of 
commodities. 

This is the realisation of commercial profit by raising the 
price of commodities, as it appears at first glance on the sur- 
face. And it is indeed a fact that this whole conception of 
the rise of profit from a nominal raise in the price of com- 
modities, or from their sale above their value, has its origin 
in the point of view of commercial capital. 

But on closer inspection it is quickly seen that this is a mere 
semblance, and that, assuming capitalist production to be the 
prevailing mode, commercial profit cannot be realised in this 
manner. (It is here always a question of averages, not of 6X- 



334 Capitalist Production. 

ceptions.) Why do we assume that the dealer in commodi- 
ties can realise his profit of 10% on his commodities only by 
selling them 10% above their price of production? Because 
we had assumed that the producer of these commodities, the 
industrial capitalist (who impersonates The producer before 
the outside world as the personification of industrial capital), 
had sold them to the dealer at their prices of production. If 
the prices paid by the dealer for commodities are equal to their 
prices of production, so that the price of production, or in the 
last instance the value, represents the cost-price for the mer- 
chant, then the excess of the latter's selling price over his 
purchase price — and only this difference constitutes his profit 
— must indeed be an excess of their commercial price over 
their price of production, so that in the last analysis the mer- 
chant would be selling all commodities above their values. 
But why did we assume that the industrial capitalist sells his 
commodities to the merchant at their prices of production ? 
Or rather, w^hat was the premise of that assumption ? It was 
that the commercial capital did not share in tlie formation of 
the average rate of profit (and as yet we are dealing with 
merchant's capital only in so far as it is commercial capital.) 
We started necessarily from this premise in the discussion of 
the average rate of profit, first, because the commercial capi- 
tal as such did not exist for us at that time ; and secondly, be- 
cause the average profit, and thus the average rate of profit, 
had to be first developed out of a mutual leveling of profits, or 
surplus-values, actually produced by the industrial capitals of 
the different spheres of production. But in the case of mer- 
chant's capital we are dealing with a capital which shares in 
the profit without participating in its production. Hence it 
now becomes necessary, to supplement our former presentation 
at this point. 

Let us suppose that the total industrial capital advanced 
for one year is 720 c + 180 ^ = ^00 (say million p.st.), and 
that s':^100%. The product is then valued at 720 c -f 
180 V + 180 s. Now let us call this product, the produced 
commodity-capital, C. Its value, or its price of production 
(both are identical for the total social commodity-capital), is 



Commercial Profit. 335 

then 1080, and the rate of profit for the total social capital of 
900 is 20%. These 20% constitute, according to our pre- 
vious analyses, the average rate of profit, since the surplus- 
value is not calculated in this instance on this or that capital 
of some particular composition, but on the average composi- 
tion of the total industrial capital. In short, C = 1,080, and 
the rate of profit =20%. Now let us further assume that 
aside from these 900 of industrial capital, there are invested 
100 of merchant's capital, which share in the profit, just as 
the industrial capital does, in proportion to their magnitude. 
According to our assumption, the total capital consists of 900 
industrial -f- 100 commercial ^. 1,000, so that the commercial 
capital is ^g- of the whole. Therefore it participates to the 
extent of -j-V ^^ the total surplus-value of 180, and by this 
means secures a profit at the rate of 18%. Actually, then, 
the profit remaining to be distributed among the other ^o ^f 
the total capital is only 162, which amounts likewise to 18% 
on the total capital of 900. In other words, the price at 
which C is sold by the owners of the industrial capital of 
900 to the dealers is Y20 c + 180 v -f 162 s = 1,062. Now, 
if the dealer adds his average profit of 18% on his capital of 
100, he sells the commodities at 1,062 + 18 = 1,080, which 
is their price of production, or, from the point of view of the 
total commodity-capital, their value, although he makes his 
profit only in and by the circulation, and only by an excess of 
his selling price over his purchase price. But nevertheless he 
does not sell the commodities above their value, nor above their 
price of production, just because he had bought them from the 
industrial capitalist below their value, or below their price of 
production. 

The merchant's capital, then, plays a determining role in 
the formation of the average rate of profit in proportion to 
its pro rata magnitude in the total capital. Hence if we say 
in the cited case that the average rate of profit is 18%, it 
would be 20%, were it not for the fact that yo" of the total 
capital is merchant's capital, which implies a reduction of the 
rate of profit by -jlg-. 

This requires also a more precise and detailed definition of 



33^ Capitalist Production. 

the price of production. By price of production we mean, 
now as before, that price of the commodities, which is equal to 
their cost (the value of the constant -f- variable capital con- 
tained in them) + the average profit. But tliis average 
profit is now differently determined. It is determined by the 
total profit produced by the total productive capital, but it is 
not calculated merely on this total productive capital. It is 
not calculated, as first assumed, so that, if the total produc- 
tive capital were 900, and the profit 180, the average rate of 
profit would be \^ =20%. It is rather calculated on the 
total productive -f- the merchant's capital, so that, if the total 
capital is 900 productive + 100 merchant's capital, the aver- 
age rate of profit is -f^-^ =18%. The price of production 
is, therefore, equal to k (the costs) -f- 18, instead of k -]- 20. 
In the average rate of profit, the share of the total profit fall- 
ing to the merchant's capital is included. The actual value, 
or price of production, of the total commodity-capital is, 
therefore, k -|- p -j- m (where m indicates profits in mer- 
chant's capital). The price of production, or the price at 
which the industrial capitalist as such sells his commodities, is 
thus smaller than the actual price of production of commodi- 
ties. Or, looking upon the matter from the point of view 
of the total commodity-capital, the prices at which the class 
of industrial capitalists sell are lower than the values of com- 
modities. Thus, in the above case, 900 costs -f- 18% on 
900, or 900 + 162 = 1,062. 

It follows, then, that the merchant, when selling a commod- 
ity at 118 for which he paid 100 does indeed raise the price 
by 18%. But since this commodity, for which he paid 100, 
is really worth 118, he does not sell it above its value. We 
shall retain the price of production as more closely defined 
above. Then it is evident, that the profit of the industrial 
capitalist is equal to the excess of the price of production of 
his commodities over their cost-price, and that the commercial 
profit, as distinguished from this industrial profit, is equal to 
the excess of the selling price over the price of production of 
the commodities, which is their cost-price for the merchant; 
but that the actual price of the commodities is equal to their 



Commercial Profit. 2>Z7 

price of production plus the commercial profit. Just as the 
industrial capital realises only such profits as exist previously 
in the commodities as surplus-value, so the merchant's capital 
realises profits only because the entire surplus-value, or profit, 
has not yet been realised in the price charged for the commodi- 
ties by the industrial capitalist.^ ^ The selling price of the 
merchant, then, stands above his purchase price, not because the 
former stands above the total value^ but because the purchase 
price stands below this value. 

The merchant's capital participates in the compensation of 
the surplus-value to an average profit, altliough it does not take 
part in its production. So the average rate of profit implies 
that general deduction from surplus-value which falls to the 
share of merchant's capital, a deduction from the profit of the 
industrial capital. 

From the foregoing it follows : 

1) The larger the merchant's capital in proportion to the 
industrial capital, the smaller is the rate of industrial profit, 
and vice versa. 

2) It was seen in the first part, that the rate of profit is al- 
ways lower than the rate of the actual surplus-value, that it 
always expresses the intensity of exploitation too low. In 
the above case, 720 c -\- 180 v -|- 180 s means a rate of sur- 
plus-value of 100%, and a rate of profit of only 20%. And 
if the merchant's capital is included in tlie calculation, then 
the difference between the rate of surplus-value and the rate 
of profit becomes still greater, the latter being only 18% in 
the present case. In that case, the average rate of profit of 
the direct exploiter of labor expresses the rate of profit in 
lower figures than it actually represents. 

Assuming all other circumstances to remain the same, the 
relative volume of the merchant's capital (excepting the small 
dealer, who represents a hermaphrodite form) will be in a 
reverse ratio to the velocity of its turn-over, or in a reverse 
ratio to the energy of the process of reproduction in general. 
In the process of scientific analysis, the formation of an aver- 
age rate of profit appears to take its departure from the in- 

2»John Bellers. 

V 



338 Capitalist Production. 

dustrial capitals and their competition, and only later on 
does it seem to be corrected, supplemented, and modified by 
the intervention of merchant's capital. But in the course of 
historical events, the process is reversed. It is the commercial 
capital, which first determines the prices of commodities more 
or less by their values, and it is the sphere of circulation, while 
promoting the process of reproduction, which first affords an 
opportunity for the formation of an average rate of profit. The 
commercial profit originally determines the industrial profit. 
]^ot until the capitalist mode of production has asserted itself 
and the producer himself has become a merchant, is the com- 
mercial profit reduced to that aliquot part of the total surplus- 
value, which falls to the share of the merchant's capital as an 
aliquot part of the total capital engaged in the social process of 
reproduction. 

In the analysis of the supplementary compensation of profit 
through the intervention of the merchant's capital it was 
found that no additional element for the advanced money- 
capital entered into the value of commodities, and that the 
addition to the price, by which the merchant makes his profit, 
was merely equal to that portion of the value of commodities, 
which the productive capital did not calculate, but rather left 
out of calculation in the price of production. The case of 
this money-capital is similar to that of the fixed capital of tlie 
industrial capitalist, which is not all consumed and does not 
pass as an element into the value of commodities. By the 
purchase price which the merchant pays for the commodity- 
capital, he replaces its price of production, M, in money. 
His own selling price, as we have previously shown, is equal 
to M + -^ M, and this A M stands for the addition to the 
price of commodities determined by the average rate of profit. 
By selling these commodities, he recovers together with this 
A M his original money-capital, which he advanced for their 
purchase. Here, then, we see once more that his money-capital 
is nothing else but the commodity-capital of the industrial cap- 
italist transformed into money-capital, and this change does 
not affect the magnitude of the volume of this commodity- 
capital any more than a direct sale to the ultimate consumer 



Commercial Profit. 339 

instead of the merchant would. It merely anticipates pay- 
ment by the consumer. However, this is correct only on the 
condition, which we had hitherto assumed, that the merchant 
has no expenses, or that he need not advance any fixed or circu- 
lating capital during the process of metamorphosis of the com- 
modities, of buying and selling, aside from the money-capital 
which he must advance for the purchase of the commodities 
from the producer. But this is not so in reality, as we have 
seen in the analysis of the costs of circulation, volume II, chap- 
ter VI. These costs of circulation represent either expenses, 
which the merchant has to reclaim from the other agents of the 
circulation, or expenses, which are due directly to his specific 
business. 

No matter what may be the character of these costs of cir- 
culation — whether they arise from the purely mercantile 
nature of the business, or whether they belong to the specific 
costs of circulation of the merchant, or whether they represent 
items, which are charges for subsequent processes of produc- 
tion added within the process of circulation, such as express- 
age, transportation, storage, etc. — they always require that the 
merchant should have, aside from his advanced money-capital, 
some additional capital for the purchase and payment of such 
means of circulation. To the extent that this element of cost 
consists of circulating capital, it passes wholly as an additional 
element into the selling price of the commodities ; to the ex- 
tent that it consists of fixed capital, it is transferred in pro- 
portion to its wear and tear. It is, however, an element, which 
forms a nominal value, even if it does not add any real value 
to the commodities. Such nominal values, which do not add 
any real value to the commodities, are the purely mercantile 
costs of circulation. But whether fixed or circulating, the en- 
tire additional capital participates in the formation of the 
general rate of profit. 

The purely commercial costs of circulation (that is, except- 
ing the costs of transportation, shipping, storage, etc.) resolve 
themselves into the costs required for the purpose of realising 
the value of commodities, by transforming it either from com- 
mocTiiies into money, or from money into commodities, by 



340 Capitalist Production. 

means of exchange. We leave entirely out of consideration 
any processes of production, which may eventually continue 
during the process of circulation, and which may exist sepa- 
rately from the merchant's business. In fact^ the actual 
transport industry and shipping may be, and are, lines of occu- 
pation entirely separated from the merchant's business, and 
the purchaseable or saleable commodities may be stored in 
warehouses or other public sheds, and the cost of storage, so 
far as it has to be advanced by the merchant, may be charged 
up to him by other people. All this becomes apparent in com- 
merce on a large scale, in which the merchant's capital assumes 
its purest form, unalloyed by other functions. The express 
owner, the railroad director, the ship owner, are not " mer- 
chants." The costs which we consider here are those of buy- 
ing and selling. We- have already remarked in another place 
that these resolve themselves into accounting^ bookkeeping, 
marketing, correspondence, etc. The constant capital required 
for this purpose consists of offices, paper, postage, etc. The 
other costs resolve themselves into variable capital advanced 
for the employment of mercantile wage workers. (Express- 
age, cost of transportation, advances for duties, etc., may be 
considered as being advances made by the merchant for the 
purchase of commodities and entering into the purchase price 
to be paid by him.) 

All these costs are not incurred in the production of the 
use-value of the commodities, but in the realisation of their 
exchange value. They are pure costs of circulation. They 
do not enter into the strict process of production, but since 
they enter into the process of circulation they are part of the 
total process of reproduction. 

The only portion of these costs that interests us here is that 
advanced as variable capital. (Furthermore the following 
questions remain to be analysed: 1) How is the law, that 
only socially necessary labor enters into the value of commodi- 
ties, enforced in the process of circulation? 2) How does 
accumulation represent itself in the case of merchant's cap- 
ital ? 3) How does merchant's capital function in the actual 
process of reproduction of society as a whole ?) 



Commercial Profit. 341 

These costs are due to the economic form of the product, 
that of a commodity. 

Seeing that the labor time lost by the industrial capitalists 
themselves while directly selling commodities to one another, 
in other words, the circulation time of the commodities, does 
not add any value to these commodities, it is evident that this 
labor time is not endowed with any other character by trans- 
ferring it from the industrial capitalist to the merchant. The 
conversion of commodities (products) into money, and of 
money into commodities (means of production) is a necessary 
function of industrial capital and, therefore, a necessary oper- 
ation for the caj)italist, who is but personified capital endowed 
with his consciousness and will. But these functions do not 
create any value, nor do they produce any surplus-value. The 
merchant, by performing these operations, by further promot- 
ing the functions of capital in the sphere of circulation after 
the productive capitalist has ceased to do so, merely steps into 
the shoes of the industrial capitalist. The labor time re- 
quired for these operations is devoted to certain necessary 
operations in the process of reproduction of capital, but it 
adds no value to it. If the merchant did not perform these 
operations (did not expend the labor time required for them), 
he would not be using his capital as a circulation agent of in- 
dustrial capital; he would not be continuing the interrupted 
function of the industrial capitalist, and consequently he could 
not participate as a capitalist, in proportion to his advanced 
capital, in the mass of profit produced by the class of industrial 
capitalists. In order to share in the mass of surplus-value, in 
order to expand the value of his advanced capital, the commer- 
cial capitalist need not employ any wage workers. If his busi- 
ness is small, he may be the only worker in it. But his wages 
are derived from that portion of the social profit which falls to 
his share through the difference between the purchase price 
paid by him for commodities and their actual price of produc- 
tion. 

Under these circumstances, and assuming the merchant's 
advanced capital to be small, the profit realised by him may 
not be a bit larger, or may even be smaller, than the wages of 



342 Capitalist Production. 

one of the better paid skilled wage workers. In fact, there 
are employed, side by side with him, many commercial agents 
of the industrial capitalist, such as buyers, sellers, travelers, 
who receive the same or a higher income than he, either in 
the form of wages, or in the form of a check upon the profit 
(percentages, tantiemes) made by each sale. In the first case, 
the merchant pockets the mercantile profit as an independent 
capitalist ; in the other case, the salesman, the wage laborer 
of the industrial capitalist, receives a portion of the profit, 
either in the form of wages, or in the form of a proportional 
share in the profit of the industrial capitalist, whose direct 
agent he is, while his principal pockets both the industrial 
and the commercial profit. But in all these cases the income 
of the circulation agent is derived from the merchant's profit, 
even though he may regard it merely as wages paid to him for 
the performance of his labor, or, where it does not appear in 
this light, though his profit may not be any larger than the 
wages of a better paid wage laborer. This follows from the 
fact that his labor is not labor producing any values. 

The prolongation of the act of circulation implies for the in- 
dustrial capitalist 1) a personal loss of time, to the extent 
that it prevents him from performing his own function as a 
manager of the productive process; 2) a prolonged stay of 
his product, in the form of money or commodities, in the proc- 
ess of circulation, that is, a process, in which it does not pro- 
duce any value and by which the direct process of production 
is interrupted. If this process is not to be interrupted, pro- 
duction must either be restricted, or more money-capital must 
be advanced, in order that the process of production may pro- 
ceed on the same scale. This means every time that either a 
smaller profit is made by the capital hitherto invested, or 
that additional money-capital must be advanced in order to 
make the same profit. All this remains unchanged, when the 
merchant takes the place of the industrial capitalist. Instead 
of the industrial capitalist, the merchant then spends this pro- 
longed time in the process of circulation ; instead of the indus- 
trial capitalist, the merchant advances additional capital for 
the circulation; or, what amounts to the same, instead of a 



Commercial Profit. 343 

large portion of the industrial capital straying off continually 
into the process of circulation, the capital of the merchant is 
wholly tied up in it ; and instead of the industrial capitalist 
making a smaller profit, he must yield a portion of his profit 
wholly to the merchant. So long as merchant's capital re- 
mains within the boundaries, in which it is necessary, the only 
difference is that this division of the functions of capital re- 
duces the time exclusively needed for the process of circula- 
tion, that less additional capital is advanced for this purpose, 
and that the loss of the total profits represented by the profits 
of merchant's capital is smaller than it would have been other- 
wise. If in the above example, a capital of 720 c -|- 180 v -j- 
180 s, assisted by a merchant's capital of 100, leaves a profit 
of 162, or 18% for the industrial capitalist, or, in other 
words, implies a deduction of 18, then the additional capital 
required without the assistance of this independent merchant's 
capital would probably be 200, and the total advance to be 
made by the industrial capitalist would be 1,100 instead of 
900, which, wnth a surplus-value of 180, would mean a rate of 
profit of only 16^*^70. 

]^ow, if the industrial capitalist, who acts as his own mer- 
chant, advances not only the additional capital with which he 
buys new commodities, before his product in process of circu- 
lation has been reconverted into money, but also capital (office 
expenses and w^ages for commercial laborers) for the realisa- 
tion of the value of his commodity-capital, or, in other words, 
for the process of circulation, then these costs form additional 
capital, but they produce no surplus-value. They must be 
made good out of the value of tlie commodities. For a portion 
of the value of these commodities must once more be converted 
into these circulation costs ; and no additional surplus-value is 
created thereby. So far as this concerns the total capital of 
society, it means that a portion of it must be set aside for sec- 
ondary operations, which are no part of the process of creating 
value, and that this portion of the social capital must be con- 
tinually reproduced for this purpose. This reduces the rate 
of profit for the individual capitalist and for the entire class 
of industrial capitalists, a result, which follows from every 



344 Capitalist Production. 

addition of auxiliary capital, whenever such capital is required 
for the purpose of setting in motion the same mass of variable 
capital. 

To the extent that these additional costs connected with the 
business of circulating are transferred from the shoulders of 
the industrial to those of the commercial capitalist, the same 
reduction in the rate of profit takes place, only to a smaller 
extent and in another way. The matter now assumes the form 
that the merchant advances more capital than would be neces- 
sary, if these costs did not exist, and that the profit on this 
additional capital increases the amount of the commercial 
profit, so that the merchant's capital shares with the industrial 
capital to a greater extent in the leveling of the average rate 
of profit, thereby lowering the average profit. If in our above 
examply 50 additional capital are advanced for those costs to- 
gether with a merchant's capital of 100, then the total surplus- 
value of 180 is distributed over a productive capital of 900 plus 
a merchant's capital of 150, a total of 1,050. The average rate 
of profit then falls to l^jfo. The industrial capitalists sells 
his commodities to the merchant at 900 + 154|- = l,054f, 
and the merchant sells them at 1,130, namely 1080 -|- 50 for 
costs which he must recover. For the rest it must be assumed 
that the division between merchant's and industrial capital is 
accompanied by a centralisation of the expenses of commerce 
and, consequently, by their reduction. 

The question is now : How is it with the commercial wage 
workers employed by the commercial capitalist, in this case 
by the merchant ? 

In one respect, such a commercial laborer is a wage laborer 
like others. For, in the first place, his labor-power is bought 
with the variable capital of the merchant, not with the money 
spent by him as revenue, and consequently this labor-power 
is not bought for private service, but for the creation of value 
by means of the capital advanced for it. In the second place, 
the value of this labor-power, and thus his wages, are deter- ' 
mined in the same way as those of other wage workers, namely 
by the cost of production and reproduction of his specific labor- 
power, not by the product of his labor. 

11 



Commercial Profit. 345 

However, we must make the same distinction between the 
commercial wage worker and the wage workers directly em- 
ployed by the industrial capital which we found existing be- 
tween the industrial capital and merchant's capital, and thus 
between the industrial capitalist and the commercial capitalist. 
Since the merchant, as a mere agent of circulation, produces 
neither value nor surplus-value (for the additional value, 
which he adds to the commodities by his expenses, resolves it- 
self into an addition of previously existing values, although 
the question here poses itself: How does he preserve the 
value of his constant capital?) it follows that the mercantile 
laborers employed in these same functions cannot very well 
create any direct surplus-value for him. Here, as in the case 
of the productive laborers, we assume that Avages are deter- 
mined by the value of labor-power, and that the merchant 
does not make money by depressing wages, so that he does not 
allow in his accounts for any advance of wages which he paid 
only in part, in other words, that he does not make money by 
cheating his clerks. 

The difficulty in the case of the mercantile wage workers is 
by no means that of explaining the way in which they produce 
any direct profits for their employer, even though they do not 
create any direct surplus-value (of which profit is but a 
changed form.) This part of the question has already been 
solved by the general analysis of commercial profits. Just as 
the industrial capital makes profits by selling labor embodied 
and realised in commodities for which it has not paid any equiv- 
alent, so the merchants' capital makes profits by not paying the 
productive capital for all the unpaid labor incorporated in the 
commodities (that is, commodities in so far as the capital in- 
vested in their production functions as an aliquot part of the 
total industrial capital), while in selling it demands payment 
for this unpaid portion still contained in the commodities and 
not paid for by itself. The relation of the merchant's capital 
to the surplus-value is different from that of the industrial 
capital. The industrial capital produces surplus-value by the 
direct appropriation of the unpaid labor of others. The mer- 
chant's capital, on the other hand, appropriates a portion of 



346 Capitalist Production. | 

this surplus-value by having this portion transferred from the 
industrial capital to itself. 

It is only by its function of realising values that the mer- 
chant's capital serves in the process of reproduction as capital 
and in this capacity gets a share of the surplus-value produced 
by the total capital. The mass of profits depends for the in- 
dividual merchant on the mass of capital, which he can invest 
in this process, and he can use so much more of it in buying 
and selling, the more unpaid labor his clerks perform. The 
function itself, by virtue of which the money of the merchant 
capitalist is capital, is largely performed by his employes. 
The unpaid labor of his clerks, while it does not create any 
surplus-value, at least appropriates surplus-value for him, 
which amounts to the same thing so far as results on his capi- 
tal go. This unpaid labor is for him, therefore, a source of 
profit. Otherwise the mercantile business could never be car- 
ried on capitalistically, on a large scale. 

Just as the unpaid labor of the laborer of the productive 
capital creates surplus-value for it in a direct way, so the un- 
paid labor of the commercial wage workers secures a share of 
this surplus-value for the merchant's capital. 

Here is the difiiculty : Seeing that the labor time and the 
labor of the merchant himself do not create any value, but 
only secure for him a share of already produced surplus-value, 
how is it wath the variable capital, which he invests in the 
purchase of commercial labor-power ? Must this variable cap- 
ital be included in the expense account of advanced mer- 
chant's capital ? If not, then it seems to be in contradiction 
with the law of the compensation of the average rate of profit ; 
for where is there a capitalist who would advance 150, if he 
could place only 100 in account? If yes, it seems to be in 
contradiction with the nature of merchant's capital, since this 
class of capital does not act in the capacity of capital by set- 
ting in motion the labor of others, as the industrial capital 
does, but rather by performing its own work, that is, the 
process of buying and selling, and only for this and by this 
means does it transfer a portion of the surplus-value pro- 
duced by the industrial capital to itself. 



I 



Commercial Profit. 347 

(Therefore the following points must be analysed: the va- 
riable capital of the merchant ; the law of necessary labor in 
circulation ; the way in which the merchant's labor preserves 
the value of his constant capital ; the role of merchant's cap- 
ital in the total process of reproduction ; and finally, the two- 
fold materialisation in commodity-capital and money-capital 
on one side, and in commercial capital and financial capital 
on the other.) 

If every merchant had only as much money as he is per- 
sonally able to turn over by his own labor, there would be 
an infinite dissociation of merchant's capital. This dissocia- 
tion would increase to the extent that productive capital, in 
the forward march of the capitalist mode of production, would 
produce and operate on a larger scale. The disproportion 
between the two classes of capital would increase. In pro- 
portion as capital in the sphere of production would be cen- 
tralised, it would be decentralised in the sphere of circula- 
tion. The purely commercial business of the industrial capi- 
talist, and thus his purely commercial expenses, would be in- 
finitely expanded thereby, for he would have dealings with 
1,000 capitalists at a time instead of 100. In this way, a 
large part of the advantage of the independent organisation of 
merchant's capital would be lost. Not only the purely com- 
mercial expenses, but also the other costs of circulation, sort- 
ing, expressage, etc., would grow. This applies to the indus- 
trial capital. 'Now let us consider the merchant's capital. 
In the first place, let us look at the purely commercial labors. 
It does not require more time to figure with large than with 
small numbers. But it costs ten times as much time to make 10 
purchases at 100 p.st. each as it does to make one purchase at 
1,000 p.st. It costs ten times as much correspondence, paper, 
postage, to carry on a correspondence with 10 small mer- 
chants as it does with one large merchant. A limited division 
of labor in a commercial office, in which one keeps books, an- 
other has charge of the treasury, a third carries on the cor- 
respondence, one man buys, another sells, another travels, 
etc., saves immense quantities of labor time, so that the num- 
ber of workers employed in wholesale commerce stand in no 



348 Capitalist Production. 

proportion to the comparative size of the business. This is 
so, because in commerce much more than in industry the same 
function, whether performed on a large or a small scale, 
costs the same labor time. For this reason, concentration 
appears historically in the merchant's business before it 
shows itself in the industrial workshop. There are further- 
more the expenses for constant capital. 100 small offices cost 
incomparably more than one large office, 100 small ware- 
houses more than one large one, etc. The costs of transporta- 
tion, which enter into the accounts of commercial business at 
least as advances, grow with this dissociation. 

The industrial capitalist would have to spend more for 
labor and circulation in the commercial part of his business. 
The same merchant's capital, when distributed among many 
small capitalists would require more laborers for the per- 
formance of its functions, on account of this dissociation, and, 
besides, more merchant's capital would be needed in order 
to turn over the same commodity-capital. 

Let us designate the entire merchant's capital directly in- 
vested in the purchase and sale of commodities by B, and the 
corresponding variable capital invested in wages of conuner- 
cial help by b. Then B -f- b is smaller than it would be, if 
every merchant had to worry along without any assistance 
and without investing any capital in b. However, we have 
not yet overcome all difficulties. 

The selling price of the commodities must suffice, 1) to 
pay the average profit on B -|- b. This explains itself by 
virtue of the fact that B -f" b represents a reduction of the 
original B and a smaller merchant's capital than would be 
required without b. But this selling price must also suffice, 
2) to cover not only the additional profit on b, but to recover 
also the paid wages, the variable capital of the merchant. 
There is the difficulty. Does b form a new constituent of the 
price, or is it merely a part of the profit made by means of 
B + b, which takes on the appearance of wages only so' far 
as the mercantile wage worker is concerned, and simply re- 
places the variable capital from the point of view of the mer- 
chant? In this last case, the profit made by the merchant 



Commercial Profit. 349 

on his advanced capital B + b would be only equal to the profit 
due to B according to the general rate, plus b, which he pays 
out in the form of wages without getting a profit on it. 

The crux of the matter is, indeed, to find the limits (math- 
ematically speaking) of b. Let us first define the difficulty 
exactly. Let us designate the capital invested directly in 
buying and seling commodities by B, the constant capital 
(expenses of objective materials of commerce) consumed in 
this function by K, and the variable capital invested by the 
merchant by b. 

The recovery of B offers no difficulties. It simply repre- 
sents for the merchant the realised purchase price, tlie price 
of production for the manufacturer. The merchant pays this 
price and in reselling he recovers B as a part of his selling 
price. Apart from this B, he also receives a profit on B, as 
we have previously explained. For instance, let the com- 
modities cost 100 p.st. The profit on this may be 10%. In 
that case the commodities are sold at 110. These commodi- 
ties cost previously 100, and the merchant's capital of 100 
merely makes an additional 10 out of them. 

Now let us look at K. It will at most be as large as, but in 
fact smaller, than that portion of the constant capital, which 
the producer would have to invest in the department of buy- 
ing and selling, and which would be an addition to the con- 
stant capital invested by him in direct production. How- 
ever, this portion must be continually recovered by the price 
of the commodities, or, what amounts to the same, a corres- 
ponding portion of the commodities must be continually ex- 
pended in this form, must, from the point of view of the total 
capital of society, be continually reproduced in this form. 
This portion of the advanced constant capital would reduce the 
rate of profit just as well as the entire mass of it invested in 
production itself. To the extent that the industrial capitalist 
gives up the commercial part of his business to the merchant, 
he is no longer compelled to advance this part of the capital. 
The merchant advances it in his stead. In a way he does 
this but nominally, since a merchant neither produces nor 
reproduces the constant capital consumed by him (the cost of 



350 Capitalist Production. 

the objective materials of commerce). Its production ap- 
pears as a specific business, or at least as a part of the busi- 
ness, of some industrial capitalists, who play a similar role 
as those, who supply the constant capital for the producers of 
necessities of life. The merchant recovers this constant cap- 
ital and his profit on it. Both things reduce the profit of the 
industrial capitalist to that extent. But owing to the econo- 
mies and concentration which come with a division of labor, 
he loses less profits than he would, if he had to advance his 
own capital for this purpose. The reduction of the rate of 
profit is smaller, because the advanced capital is smaller. 

So far, then, the selling price is made up of B + K -f- 
profits on B -j- K. This portion of the selling price offers 
no further difficulties. But now b, the variable capital ad- 
vanced by the merchant, enters into this consideration. 

The selling price is then made up of B + K + b + profits 
on B + K -f- profits on b. 

B makes good merely the purchase price and adds nothing 
to this price but the profit on B. K adds K itself plus a 
profit on K; but K + profit on K, the circulation cost ad- 
vanced in the form of constant capital plus a corresponding 
average profit, would be larger in the hands of the industrial 
capitalist than it is in those of the merchant. The reduction 
of the average profit assumes this form : It is as though the 
full average profit had been calculated, after deducting B -}- 
K from the advanced industrial capital, but the deduction from 
this average profit for B + K paid to the merchant, so that 
this deduction appears as the profit of a particular class of 
capital, of merchant's capital. 

But it is different with b + profits on b, or in the present 
case, where we have assumed a rate of profit of 10%, with 
b 4" Yo'b. Here lies the real difficulty. 

What the merchant buys with b, is according to our assump- 
tion nothing but commercial labor, in other words, labor re- 
quired for the promotion of the functions of circulating the 
capital, of performing the acts C — M and M — C But 
this commercial labor is that labor, which is generally neces- 
sary, in order that any capital may perform the functions of 



Commercial Profit. 351 

commercial capital, the conversion of commodity-capital into 
money and money into commodities. It is labor which real- 
ises values, but does not create any. And only to the extent 
that a capital performs this function — that a capitalist per- 
forms these operations Avith his capital — ■ does this capital 
serve as commercial capital and participate in the regulation 
of the general rate of profit, that is, draw its dividend out of 
the total profit. But in b + profit on b, it looks as though 
labor were being paid, in the first place (for it makes no differ- 
ence, whether the industrial capitalist pays the merchant for 
his own labor or the clerk employed by the merchant for his), 
and in the second place, as though it contained a profit on 
labor, which the merchant himself has to perform. The mer- 
chant's capital gets in the first place its b refunded, and in 
the second place a profit on it. This arises from the fact 
that it demands pay, in the first place, for work, which it per- 
forms in its capacity as merchant's capital, and that it re- 
ceives, in the second place, a profit in its capacity of capital^ 
for performing work, which is remunerated in the profit as 
the function of capital. This, then, is the question which we 
have to solve. 

Let us assume that B = 100, b =. 10, and the rate of profit 
= 10%. We place K=. O, in order to leave this element 
of the purchase price, which does not belong here and has 
already been accounted for, out of consideration. In that 
case, the selling price would beB + P + b + p (or B + Bp' 
+ b -f- bp'') ; where p' stands for the rate of profit. This 
means in figures 100 + 10 + 10 + 1 = 121. 

Now, if b would not be invested by the merchant in wages 
— since b is paid only for commercial labor, for labor re- 
quired for the realisation of the value of commodity-capital 
thrown on the market by industrial capital — then the condi- 
tion of the matter would be the following: In order to buy 
or sell anything for B = 100, the merchant would spend his 
time, and we will assume, that this is the only time at his 
disposal. The commercial labor represented by b, or 10, if 
paid for by a profit instead of wages, would presuppose an- 
other commercial capital of 100, which, at 10%, would be 



352 Capitalist Production. 

equal to b = 10. This second B of 100 would not be added 
to the price of commodities, but the 10% would. We should 
then have two operations with 100, making 200, that would 
buy commodities at 200 + 20 = 220. 

Since merchant's capital is nothing but an independent 
form of a portion of industrial capital engaged in the process 
of circulation, all questions referring to it must be solved by 
representing the problem at first in that fonn, in which the 
phenomena peculiar to merchant's capital do not yet appear 
in an independent shape, but still in direct connection with 
industrial capital as one of its subdivsions. As an office 
separate from the workshop, the mercantile capital serves 
continually in the process of circulation. It is here that we 
must first analyse the b under consideration — in the office of 
the industrial capitalist himself. 

The office is from the outset always infinitesimally small 
compared to the industrial workshop. For the rest, it is clear 
that the commercial operations increase to the extent that 
the scale of production is enlarged. These are operations, 
which must be continually performed for the circulation of 
the industrial capital, in order to sell the product existing in 
the shape of commodities, to convert the money so received 
once more into means of production, and to keep account of 
the whole. The calculation of prices, bookkeeping, managing 
funds, carrying on the correspondence, all these belong under 
this head. The more developed the scale of production is, 
the greater, if not in proportion, Avill be the commercial oper- 
ations of industrial capital, and consequently the labor and 
other costs of circulation for the realisation of value and sur- 
plus-value. This necessitates the employment of commercial 
wage workers, who form the office staff. The expenses for 
these, although incurred for wages, differ from the variable 
capital invested in the purchase of productive labor. It in- 
creases the expenses of the industrial capitalist, the mass of 
capital to be advanced, without increasing the direct surplus- 
value. For these expenses are made for labor, which is em- 
ployed only for the realisation of already created values. 
Like every expense of this kind, these expenses reduce the 



Commercial Profit. 353 

rate of profit, because the advanced capital increases, but not 
the surplus-value. If the surplus-value s remains constant, 
while the advanced capital C increases to C + -^ ^) then the 
place of the rate of profit -§- is taken by the smaller rate of 
profit r 4-^A c • ^^^ ^^^^ reason, the industrial capitalist en= 
deavors to limit these expenses of circulation to a minimum, 
just as he does with his expenses for constant capital. Hence 
industrial capital does not maintain the same relations to its 
commercial wage laborers tliat it does to its productive wage la- 
borers. The greater the number of productive wages laborers 
employed under otherwise equal circumstances, the more volu- 
minous is production, the greater the surplus-value or profit. 
On the other hand, the larger the scale of production, the' 
greater the quantity of value and surplus-value to be realised, 
the greater, in other words, the produced commodity-capital, the 
larger grow the absolute oSice expenses, even if they do not 
grow relatively, and give rise to some kind of division of labor. 
To what extent profit is the first condition for these expenses, 
is shown among other things by the fact, that with the in- 
crease of commercial salaries a part of them is frequently 
paid by a share in the profits. It is in the nature of things 
that labor consisting merely of intermediary operations, which 
are connected either with a calculation of values, or with their 
realisation, or with the reconversion of the realised money 
into means of production, a labor whose amount depends on 
the quantity of produced values about to be realised, should 
not act as cause of the respective magnitudes and masses of 
these values, as directly productive labor does, but as their re- 
sult. The case of the other costs of circulation is similar. 
In order that plenty may be measured, weighed, wrapped, 
transported, plenty must be supplied. The amount of labor 
consumed in packing, transporting, etc., depends on the quan- 
tity of the commodities which are the objects of its activity, 
not vice versa. 

The commercial laborer does not produce any surplus-value 
directly. But the value of his labor is determined by the 
value of his labor-power, that is, of its costs of production, 

while the application of this labor-power, its exertion, ex- 

w 



354 Capitalist Production. 

pression, and consumption, the same as in the case of every 
other Avage laborer, is hj no means limited by the value of 
his labor-power. His wages are therefore not necessarily in 
proportion to the mass of profits, which he helps the capitalist 
to realise. What he costs the capitalist and what he makes 
for him are two different things. He adds to the income 
of the capitalist, not by creating any direct surplus-value, but 
by helping him to reduce the costs of the realisation of sur- 
plus-value. In so doing, he performs partly unpaid labor. 
The commercial laborer, in the strict meaning of the term, 
belongs to the better paid classes of wage Avorkers, he belongs 
to the class of skilled laborers, which is above the average. 
However, wages have a tendency to fall, even in proportion to 
the average labor, with the advance of the capitalist mode of 
production. This is due to the fact that in the first place, 
division of labor in the office is introduced; this means that 
only a onesided development of the laboring capacity is re- 
quired, and that the cost of this development does not fall 
entirely on the capitalist, since the ability of the laborer is 
developed through the exercise of his function and increases 
so much faster, the more onesidedly the division of labor de- 
velops. In the second place, the necessary preparation, such 
as the learning of commercial details, languages, etc., is more 
and more rapidly, easily, generally, cheaply reproduced with 
the progress of science and popular education, to the extent 
that the capitalist mode of production organises the methods 
of teaching, etc., in a practical manner. The generalisation 
of public education makes it possible to recruit this line of 
laborers from classes that had formerly no access to such educa- 
tion and that were accustomed to a lower scale of living. 
At the same time this generalisation of education in- 
creases the supply and thus competition. With a few 
exceptions, the labor-power of this line of laborers is therefore 
depreciated with the progress of capitalist development. 
Their wages fall, while their ability increases. The capital- 
ist increases the number of these laborers, whenever he has 
more value and profits to realise. The increase of this labor 



Commercial Profit. 355 

is always a result, never a cause of the augmentation of sur- 
plus-value.'*'^ 



We see, then, that a duplication takes place here. On the 
one hand, the functions of commodity-capital and money- 
capital (which later become merchant's capital) are general 
forms assumed by industrial capital. On the other hand, 
particular capitals, and iherefore a particular series of cap- 
italists, are exclusively devoted to these functions. And these 
functions develoj) into sjDCcific spheres of enhancing the value 
of capital. 

The commercial functions and expenses of circulation be- 
come independent only in the case of the mercantile capital. 
That side of industrial capital, which is devoted to the circu- 
lation, exists not only in its continuous shape of commodity- 
capital and money-capital, but also in the office alongside of 
the workshop. But it assumes an independent existence in 
the mercantile capital. For this capital, its office is its only 
workshop. The portion of capital employed in the form of 
expenses of circulation appears much larger in the business 
of the large merchant than in that of the industrial capitalist, 
because the offices connected with every industrial workshop 
are concentrated in the hands of a few merchants, and so is 
at the same time that portion of the capital, which would have 
to be invested for this purpose by the entire class of indus- 
trial capitalists. These merchants take care of the circula- 
tion and provide for the expenses incidental to its continua- 
tion. 

For the industrial capital, the expenses of circulation ap- 
pear as dead expenses, and so they are. For the merchant 
they appear as a source of his profit, which is proportional to 

*" How well this prognosis of the fate of the commercial proletariat, written 
in 1865, has stood the test can be corroborated by hundreds of German clerks, 
who, trained in all commercial operations and acquainted with three or four lan- 
guages, in vain offer their services in London City at 25 shillings per week, 
far below the wages of a good machine maker. A blank of two pages in the 
manuscript indicates, that this point was to be further elaborated. For the rest, 
we refer the reader to volume II, chapter VI (.The Expenses of Circulation), 
where various things belonging under this head have already been discussed. — F. E. 



356 Capitalist Production. 

the level of tlie average rate of profit, whose existence is as- 
sumed. The investment to be made by the mercantile capital 
for these expenses of circulation is, therefore, a productive in- 
vestment. And for this reason the commercial labor which it 
buys is likewise immediately productive for it. 



CHAPTEK XVIIT. 

THE TURN-OVER, OF MERCHANT'S CAPITAL. THE PRICES. 

The turn-over of industrial capital is the combination of it» 
time of production and time of circulation. It comprises, 
therefore, the process of production as a whole. The turn- 
over of merchant's capital, on the other hand ; being in reality 
nothing but a movement of commodity-capital in an inde- 
pendent form, represents merely the first jjhase in the meta- 
morphosis of commodities, C — M, as a movement of some 
capital returning to itself. M — C, C — M, is the turn- 
over of merchant's capital from the mercantile point of view. 
The merchant buys, converts his money into commodities, 
then sells, converts the same commodities back into money. 
And so forth in continuous repetitions. Within the circula- 
ti(jn, the metamorphosis of industrial capital always presents 
itself in the form of C — M — C'' ; the money realised by 
the sale of the produced commodities C is used for the pur- 
chase of new means of production C". This amounts to a 
practical exchange of C for C', and the same money thus 
changes hands twice. Its movement acts as an intennediary 
between two different kinds of commodities C and C. But 
in the case of the merchant, it is the same commodity, which 
changes hands twice in the process M — C — M'. It merely 
promotes the reflux of his money to him. 

For instance, if a certain merchant's capital is 100 p.st., 
and the merchant buys for these 100 p.st. commodities and 
sells these commodities for 110 p.st., then his capital of 100 
p.st. has completed one turn-over, and the number of its turn- 
overs in one year depends on the number of times which it 
can repeat this movement M — C — M'. 



Turn-over of Merchant's Capital. 357 

We leave entirely out of consideration at this point those 
expenses, which may be concealed in the difference between 
the purchase price and the selling price, since these expenses 
do not alter in any way the form, which we are now analys- 
ing. 

The number of turn-overs of a certain merchant's capital 
shows evidently some analogy to the repeated cycles of money 
in its capacity as a mere medium of circulation. Just as the 
same dollar, which circulates ten times, buys ten times its 
value in commodities, so the same money-capital of the mer- 
chant, when turned over ten times, buys ten times its value in 
commodities, or realises a total commodity-capital of ten times 
its value, for instance a merchant's capital of 100 a value of 
1,000. But there is this difference: In the circulation of 
money as a medium of circulation, it is the same piece of 
money, which passes through different hands and performs 
repeatedly the same function, thereby making up for the lim- 
ited number of the circulating pieces of money by the velocity 
of its circulation. But in the case of the merchant it is the 
same money-capital, the same money-value regardless of the 
pieces of money of which it may be composed, which repeatedly 
buys and sells the amount of its value, thereby returning re- 
peatedly to the same hands from which it departed as M + 
A M, value plus surplus-value. This is characteristic of its 
turn-over as a turn-over of capital. It always withdraws more 
money from circulation than it threw into it. By the way, 
it is a matter of course that an accelerated turn-over of mer- 
chant's capital (in which the function of money as a means 
of payment likewise predominates whenever the credit system 
is developed) is accompanied by a more rapid circulation of 
the same quantity of money. 

A repeated turn-over of commercial capital, however, never 
expresses anything else but a repetition of buying and selling ; 
while a repeated turn-over of industrial capital expresses the 
periodicity and renovation of the entire process of reproduc- 
tion (which includes the process of consumption). For the 
merchant's capital, this appears merely as an outward condi- 
tion. The industrial capital must continually throw com- 



358 Capitalist Production. 

modities on the market and withdraw others from it, in order 
that the turn-over of merchant's capital may continue rapidly. 
If the process of reproduction proceeds slowly in general, 
then the turn-over of merchant's capital does likewise. jS^ow, 
it is true that the merchant's capital promotes the turn-over 
of the productive capital, but only in so far as it shortens the 
time of circulation of the latter. It has no direct influence 
on the time of production, which is also one of the limits of 
the time of turn-over of industrial capital. This is the 
first barrier for the turn-over of merchant's capital. In the 
second place, aside from the barrier fonned by reproductive 
consumption, the tui'n-over of the merchant's capital is ulti- 
mately limited 1^ che velocity and volume of individual con- 
sumption, since the entire part of commodity-capital which 
passes into the fund for consumption depends on that. 

However, aside from the turn-overs in the world of mer- 
chants, in which one merchant always sells the same commod- 
ity to another, whereby this sort of circulation may assume 
the aspect of great prosperity during times of speculation, 
the merchant's capital abbreviates in the first place the phase 
C — M for the productive capital. In the second place, 
under the modern credit system, it disposes of a large portion 
of the total capital of society, so that it can repeat its pur- 
chases, even before it has definitely sold its previous pur- 
chases. And it is immaterial in this case, whether the mer- 
chant sells directly to the ultimate consumer, or whether a 
dozen other merchant's intervene between the first merchant 
and the ultimate consumer. Owing to the immense elasticity 
of the process of reproduction, which at any time may be 
driven beyond all bounds, this process finds no obstacle in pro- 
duction itself, or at best a very elastic one. Aside from the 
separation of C — M and M — C, which follows from the 
nature of commodities, a fictitious demand is here created. In 
spite of its independent status, the movement of merchant's 
capital is never anything else but the movement of industrial 
capital within the sphere of circulation. But thanks to its 
individualisation it moves within certain limits independ- 



Tuni-oz'cr of Merchant's Capital. 359 

entlj of the bounds of the process of reproduction, and 
thereby drives this process itself beyond its boundaries. The 
internal dependence and the external independence drive mer- 
chant's capital to a point, where the internal connection is 
violently restored by a crisis. 

Hence we note the phenomenon that crises do not show 
themselves, nor break forth, first in the retail business, which 
deals with direct consumption, but in the spheres of whole- 
sale business and banking, by which the money-capital of so- 
ciety is placed at the disposal of wholesale business. 

The manufacturer may actually sell to the exporter, and the 
exporter may in his turn sell to his forGigT> ^Aistomer, the im- 
porter may sell his raw materials to the manufacturer, and 
the manufacturer his products to the wholesale dealer, etc. 
But at some particular and unseen point, the goods may lie 
unsold. On some other occasion, again, the supplies of all 
producers and middle men may become gradually overstocked. 
Consumption is then generally at its best either because one 
industrial capitalist sets a succession of others in motion, or 
because the laborers employed by them are fully employed and 
spend more than ordinarily. With the growing income of the 
capitalists their expenditures increase likewise. Besides, we 
have seen in volume II, Part III, that a continuous circulation 
takes place between constant capital and constant capital (even 
without considering any accelerated accumulation), which is 
in so far independent of individual consumption, as it never 
enters into such consumption, but which is nevertheless defi- 
nitely limited by it, because the production of constant capi- 
tal never takes place for its own sake, but solely because more 
of this capital is needed in those spheres of production whose 
products pass into individual consumption. However, this 
may proceed undisturbed for a while, stimulated by prospec- 
tive demand, and in such lines the business of merchants and 
industrial capitalists prospers exceedingly. A crisis occurs 
whenever the returns of those merchants, who sell at long 
range, or whose supplies have accumulated also on the home 
market, become so slow and meager, that the banks press for 
payment, or the notes for the purchased commodities become 



360 Capitalist Production. 

due before they have been resold. It is then that forced 
sales take place, sales made in order to be able to meet pay- 
ments. And then we have the crash, which brings the decep- 
tive prosperity to a speedy end. 

But the superficiality and meaninglessness of the turn-over 
of merchant's capital are still greater, because the turn-over 
of one and the same merchant's capital may promote simul- 
taneously or successively the turn-overs of several productive 
capitals. 

JSTow, the turn-over of merchant's capital may not only 
promote the turn-overs of several industrial capitals, but also 
the opposite phase of the metamorphosis of commodity-capi- 
tal. For instance, the merchant buys linen from the manu- 
facturer and sells it to the bleacher. In this case, the turn- 
over of the same merchant's capital — in fact, the same 
C — M, a realisation on the linen — represents two opposite 
phases for two different industrial capitals. So far as the 
merchant sells at all for productive consumption, his C — M 
always means M — C for some industrial capitalist, and his 
M — C always C — M for some other industrial capitalist. 

If we leave out of consideration, as we do in this chapter, 
K, the expenses of circulation, in other words, if we leave 
aside that portion of capital which the merchant advances 
apart from the money required for the purchase of commodi- 
ties, it follows that A K, the additional profit made on this 
additional capital, will likewise be left out. This is the 
strictly logical and mathematically correct mode of analysis, 
if we wish to study the way in which the profits and turn-over 
of merchant's capital affect prices. 

If the price of production of 1 lb. of sugar is 1 p. St., the 
merchant can buy 100 lbs. of sugar with 100 p.st. If he 
buys and sells this quantity in the course of one year, and if 
the annual rate of average profit is 15% he would add 15 
p.st. to 100 p.st., and 3 sh. to the price of production of 1 lb. 
of sugar, 1 p.st. That is, he would sell one pound of sugar 
at 1 p.st. 3 sh. But if the price of production of 1 lb. of 
sugar should fall to 1 sh., then the merchant could buy 2,000 
lbs. of sugar with 100 p.st., and he could sell the sugar at 1 



The Prices. 361 

sh. If d. per lb. The annual profit on capital invested in the 
sugar business would still be 15 p.st, on each 100 p.st. Only 
he has to sell 100 lbs. in the first case, while he must sell 2,000 
lbs. in the second place. The high or low level of the price 
of production would not have anything to do with the rate of 
profit. But it would have a great deal, or even a decisive 
deal, to do with that aliquot part of the selling price of each 
lb. of sugar which resolves itself in mercantile profit ; in 
other words, it would have a great deal to do with the addi- 
tion to the price which the merchant makes on a certain quan- 
tity of commodities, or products. If the price of production 
of a certain commodity is small, then the amount advanced 
by the merchant for tlie purchase of a certain quantity of that 
commodity is also small, and so is the amount of profit made 
by him on this quantity of cheap commodities. Or, what 
amounts to the same, he can buy with a certain amount of cap- 
ital, for instance with 100, a large quantity of these commod- 
ities, and the total profit of 15, which he makes on 100, will 
be distributed in small fractions over each individual portion 
of this mass of commodities. The opposite takes place in the 
opposite case. This depends entirely on the greater or smaller 
productivity of the industrial capital, with whose products 
he trades. If we except the cases, in which the merchant is a 
monopolist and monopolises at the same time the production 
of certain goods, as did the Dutch East India Company once 
upon a time, we must say that there is nothing more ridiculous 
than the current idea that it depends on the merchant whether 
he wants to sell many commodities at a small profit or few 
commodities at a large profit on the individual commodities. 
The two limits of his selling price are : On one hand, the 
price of production of commodities, over which he has no con- 
trol ; on the other hand, the average rate of profit, over which 
he has also no control. The only thing which he has to de- 
cide is whether he wants to deal in cheap or in dear commod- 
ities, and even here the size of his available capital and 
other circumstances have something to say. Therefore it de- 
pends wholly on the degree of development of the capitalist 
mode of production, not on the good will of the merchant, 



362 Capitalist Production. 

what course lie shall follow in this. A purely commercial 
company like the old Dutch East India Company, which had 
a monopoly of production, could imagine that it would he 
able to continue a method, adapted at best to the beginnings 
of capitalist production, under entirely changed conditions. ^^ 
The following circumstances, among others, help to main- 
tain that popular prejudice, which, like all wrong conceptions 
of profit, etc., arise out of the views of pure commerce : 

1) Phenomena of competition, which, however, concern 
merely the distribution of mercantile profit among the indi- 
vidual merchants in their capacity as shareholders in the total 
merchant's capital; such as the underselling of other mer- 
chants by one of them for the purpose of beating his competi- 
tors. 

2) An economist of the caliber of Professor Roscher of 
Leipsic may still imagine that a change in the selling prices 
may be brought about by considerations of '' prudence and 
humanity," instead of being due to a revolution in the mode 
of production itself. 

3) If the prices of production fall on account of an in- 
creased productivity of labor, and if consequently the selling 
prices also fall, then the demand, and with it the market 
prices, often rise even faster than the supply, so that the sell- 
ing prices yield more than the average profit. 

4) A merchant may reduce his selling price (which 
amounts after all to no more than a reduction of the current 
profit which he adds to the price) in order to turn over a 
large capital more rapidly in his business. 

All these things concern only competition between mer- 
chants themselves. 

We have already shown in volume I, that the high or low 

**" Profit, on the general principle, is always the same, whatever be price; 
keeping its place like an incumbent body on the swelling or sinking trade. As, 
therefore, prices rise, a tradesman raises prices; as prices fall, a tradesman lowers 
price." (Corbet, An Inquiry into the Causes, etc., of the Wealth of Individuals. 
London, 1845, p. 15.) Here, as in the text of our work generally, we speak only 
of ordinary commerce, not of speculation. The analysis of speculation, as well as 
everything else pertaining to the division of mercantile capital, falls outside of 
the circle of our inquiry. " The profit of trade is a value added to capital which 
is independent of price, the second (speculation) is founded on the variation in 
the value of capital or in price itself." (L. c, p. 12.) 



The Prices. 363 

level of the prices of commodities determines neither the mass 
of surplus-value 2:)roduced bj a certain capital nor the rate 
of surplus-value ; it is merely true that, according to the rel- 
ative quantity of commodities produced by a certain quan- 
tity of labor, the price of the individual commodity, and with 
it the share of surplus-value falling upon this price, is greater 
or smaller. The prices of every quantity of commodities 
are determined, so far as they correspond to their values, by 
the total quantity of labor incorporated in these commodities. 
If much labor is incorporated in few commodities, then the 
price of the individual commodities is low and the surplus- 
value contained in them is small. No matter in what propor- 
tion the labor incorporated in a commodity is divided into 
paid and unpaid labor, and no matter what portion of its 
price may represent surplus-value, it has nothing to do with 
the total quantity of this labor, nor, consequently, with its 
price. On the other hand, the rate of surplus-value does not 
depend on the absolute magnitude of the surplus-value con- 
tained in the price of the individual commodity, but on its 
relative magnitude, on its proportion to the wages contained in 
the same commodity. The rate of surplus-value may there- 
fore be large, while the absolute magnitude of the sui'plus- 
value in each individual commodity may be small. This ab- 
solute magnitude of the surplus-value in each commodity de- 
pends in the first place on the productivity of labor, and only 
in the second place on its division into paid and unpaid labor. 

Moreover, in the case of the commercial selling price, the 
price of production is a condition determined by external cir- 
cumstances. 

The high prices of commerce in former times were due 
1) to the dearness of the prices of production, in other words, 
to the unproductivity of labor; 2) to the absence of an aver- 
age rate of profit, which enabled the merchant's capital to ab- 
sorb a much larger quantity of the surplus-value than would 
have fallen to its share, had the capitals enjoyed a greater 
general mobility. The cessation of this condition, in both of 
its aspects, is due to the development of the capitalist mode 
of production. 



364 Capitalist Production. 

The turn-overs of merchant's capital vary in length, their 
numbers consequently are greater or smaller, in different lines 
of commerce. Within the same line of commerce, the turn- 
over is more or less rapid in different phases of the economic 
cycle. However, an average number of turn-overs, which is 
found by experience, takes place. 

We have already noted, that the turn-over of merchant's 
capital differs from that of industrial capital. This follows 
from the nature of the case ; one single phase in the turn- 
over of industrial capital appears as a complete turn-over of 
some independently constituted merchant's capital, or of a 
part of some such merchant's capital. This turn-over has 
also a different relation to the determination of profit and 
prices. 

In the case of the industrial capital, its turn-over expresses 
on one hand tlie periodicity of reproduction, and on it de- 
pends the mass of commodities, which may be thrown on the 
market in a certain period. On the other hand, its time of 
circulation forms a barrier, which is elastic and exerts more 
or less of a restraint on the creation of value and surplus- 
value, because it exerts a pressure on the volume of the proc- 
ess of production. The turn-over therefore acts as a deter- 
mining element on the mass of annually produced surplus- 
value, and thus helps to determine the average rate of profit, 
but it acts as a negative, not as a positive element. For the 
merchant's capital, however, the average rate of profit exists 
as a given magnitude. The merchant's capital does not di- 
rectly participate in the creation of value or surplus-value, 
and it participates in the formation of an average rate of 
profit only to the extent that draws a dividend, in propor- 
tion to its size in the total social capital, out of the mass of 
profit produced by the industrial capital. 

The greater the number of turn-overs of a certain industrial 
capital is under the conditions described in Volume II, Part 
II, the greater is the mass of profits created by it. ^ow, the 
formation of an average rate of profit distributes the total 
profit among the different capitals, not in proportion to their 
actual participation in its direct production, but in proportion 



Turn-over of Merchant's Capital. 365 

to the aliquot parts which they constitute in the total capital, 
that is, in proportion to their magnitudes. But this does not 
alter the essence of the matter. The greater the number of 
turnovers of the industrial capital as a whole is, the greater is 
the mass of profits, the mass of annually produced surplus- 
value, and therefore the rate of profit, always assuming other 
circumstances to remain unchanged. It is different with mer- 
chant's capital. For it, the rate of profit is a given magnitude, 
determined on one hand by the mass of profit produced by the 
industrial capital, on the other hand by the relative magTiitude 
of the total merchant's capital, by its quantitative relation to 
the sum of capital advanced in the processes of production 
and circulation. The number of its turn-overs does indeed 
exert a determining influence on its relation to the total social 
capital, or on the relative magnitude of the total merchant's 
capital required for the circulation. For it is evident that 
the absolute magnitude of the total merchant's capital and the 
velocity of its turn-over are inversely proportioned to one 
another. But, all other circumstances remaining the same, 
the relative magnitude of the merchant's capital, or its aliquot 
proportion in the total social capital, is determined by its ab- 
solute magnitude. If the total social capital is 10,000, and 
the merchant's capital 1,000, then it is yg" of the total ; if the 
total capital is 1,000, and the merchant's capital 100, it is 
again j-^. To that extent, the absolute magnitude of the mer- 
chant's capital may vary, while its relative magnitude in the 
total social capital remains the same. But in the present 
case, we assume that its relative magnitude of yq- of the total 
social capital is given. This relative magnitude, again, is de- 
termined by its turn-over. If it is turned over rapidly, its 
absolute magnitude will be 1,000 in the first case, and 100 in 
the second, so that its relative magnitude will be -^-q. But if 
it is turned over more slowly, then its absolute magnitude may 
be 2,000 in the first case, and 200 in the second case. Then 
its relative magnitude will have increased from -^^ to i of 
the total social capital. Circumstances which reduce the 
average turn-over of merchant's capital, for instance, the de- 
velopment of means of transportation, reduce to that extent the 



366 Capitalist Production. 

absolute magnitude of merchants' capital and thereby in- 
crease the average rate of profit. The opposite takes place, 
if things are reversed. A developed mode of capitalist pro- 
duction, compared to previous conditions, exerts a twofold in- 
fluence on merchants' capital. In the first place, the same 
quantity of commodities is turned over with a smaller mass of 
actually functioning merchants' capital; for the proportion 
of the mcrcliants' capital to industrial capital is reduced by the 
more rapid turn-over of merchants' capital and the greater ve- 
locity, of the process of reproduction that is its basis. On the 
other hand, the development of the capitalist mode of produc- 
tion turns all production into a production of commodities, 
which puts all products into the hands of the agents of circu- 
lation. This is so much more notable, as under previous 
modes of production, wliich produced things on a small scale, 
a large portion of the producers sold their goods directly to 
the consumers or worked for their personal orders, leaving 
out of consideration that mass of products, which were im- 
mediately consumed by the producer himself, and that mass 
of services, which were performed in natura. While, there- 
fore, under former methods of production, commercial cap- 
ital represented proportionately a larger share of the commod- 
ity-capital which it turned over, it was. 

1) absolutely smaller, because a disproportionately smaller 
part of the total product was produced in the shape of com- 
modities, passed as commodity-capital into circulation, and 
fell into the hands of merchants. It was smaller, because the 
commodity-capital was smaller. But it was proportionately 
larger, not only because its turn-over was slower, and because 
it constituted a larger portion of the mass of commodities 
turned over by it, but also because the price of this mass of 
commodities, and consequently the merchants' capital to be ad- 
vanced for it, were greater than under capitalist production 
on account of a lower productivity of labor, so that the same 
value was incorporated in a smaller mass of commodities. 

2) T^ot alone is a larger mass of commodities produced on 
the basis of capitalist production (taking account also of the 
reduced value of these commodities), but the same mass of 



Turn-over of Merchant's Capital. 367 

products, for instance, of corn, also becomes to a greater ex- 
tent commodity, that is, more and more of the product be- 
comes an object of commerce. As a consequence, not only tlie 
mass of the merchants' capital, but of all capital invested in 
the circulation, increases, such as capital invested in marine 
shipping, railroading, telegraph business, etc. ; 

3) However, there is one point of view, which belongs in 
the discussion of " competition among capitals," namely : 
The merchants' capital, which is not serving in any function, 
or serving only in part, grows with the progress of the capital- 
ist mode of production, with the facility of its investment 
in retail trade, with the increase of speculation, and with the 
superfluity of released capital. 

But, assuming the relative magnitude of the merchants' 
capital in proportion to the social capital to be given, the 
difference of the turn-overs in the various lines of commerce 
does not affect the magnitude of the total profit falling to the 
share of the total merchants' caj)ital, nor the general rate of 
profit. The profit of the merchant is determined, not by the 
mass of the commodity-capital turned over by him, but by the 
magnitude of the money-capital advanced by him for the pro- 
motion of this turn-over. If the yearly general rate of profit 
is 15%, and the merchant advances 100 p.st., which he turns 
over once a year, then he will sell his commodities at 115. If 
his capital is turned over five times per year, then he will sell 
a commodity-capital of 100 purchase price five times per 
year at 103, which will amount in one year to a commodity- 
capital of 500 sold 515. This constitutes the same annual 
profit of 15% on his advanced capital of 100 as before. If 
this were not so, then the merchants' capital would yield a 
much higher profit in proportion to the number of its turn- 
overs than the industrial capital, and this would be a con- 
tradiction to the law of the average rate of profit. 

It follows, then, that the number of turn-overs of mer- 
chants' capital in the various lines of commerce affects the 
mercantile prices of commodities directly. The amount of 
the mercantile addition to the price, the addition of that 
aliquot part of the mercantile profit of a given capital which 



368 Capitalist Production. 

falls upon the price of i^roduction of the individual commodi- 
ties, stands in an inverse ratio to the number of turn-overs, or 
the velocity of turn-over, of the merchants' capitals in the va- 
rious lines of commerce. If a certain merchants' capital is 
turned over five times per year, it will add to a commodity- 
capital of its own value but one-fifth of the profit, Avhich an- 
other merchants' capital of the same value, which is turned 
over but once per year, will add to a commodity-capital of the 
same value. 

This modification of selling prices by the average time of 
turn-over of the capitals in different lines of commerce amounts 
to this : In proportion to the velocity of turn-over, the same 
mass of profits, which is determined by the annual rate of 
average profit for any given magnitude of merchants' capital, 
independently of the specific commercial character of the 
operations of this capital, is differently distributed over 
masses of commodities of the same value. For instance, if 
the merchants' capital is turned over five times per year, it 
will add ^ = 3% to the price of commodities, and if turned 
over once per year, it will add 15% to their price. 

The same percentage of the commercial profit in different 
lines of industry, according to the proportions of their times of 
turn-over, increases the selling prices of commodities by differ- 
ent percentages calculated on their values. 

On the other hand, in the case of industrial capital, the time 
of turn-over does not affect in any way the magnitude of the 
v^alue of the individual commodities produced during that 
time, although it does affect the mass of value and surplus- 
value produced in a given time, because it affects the mass of 
exploited labor. This is indeed concealed and seems to be 
otherwise, as soon as one has an eye only to the prices of 
production. But this is due solely to the fact that, according 
to the previously analysed laws, the prices of production of the 
various commodities deviate from their values. As soon as we 
look upon the process of production in its totality, upon the 
mass of commodities produced by the entire industrial capital 
of society, we shall find the general law vindicated. 

We see then, that a closer inspection of the influence of the 



Turn-over of Merchant's Capital. 369 

time of turn-over on the formation of the values leads us back, 
in the case of the industrial capital, to the general law and to 
the basis of political economy, to-wit, the law that the values 
of commodities are determined by the labor time contained 
in them. But the influence of the turn-overs of merchants' 
capital on the mercantile prices reveals phenomena, which, 
without a very lengthy analysis of the connecting links, seem 
to point to a purely arbitrary fixing of prices. They seem to 
be fixed purely on the intention that a certain capital should 
make a definite quantity of profits in one year. Particularly 
it looks, on account of this influence of the turn-overs, as 
though the process of circulation determined by itself the 
prices of commodities, independently, within certain limits, 
of the process of production. All superficial and false con- 
ceptions of the process of reproduction as a whole arise from 
the point of view of merchants' capital and from the concep- 
tions, which its peculiar movements call forth in the minds 
of the agents of circulation. 

If it is realised — and the reader will have realised it to 
his great dismay — that the analysis of the actual internal 
interconnections of the capitalist process of production is a 
very complicated matter and a very protracted work ; if it is 
a work of science to resolve the visible and external movement 
into the internal actual movement, then it is understood as a 
matter of course, that the conceptions formed about the laws of 
production in the heads of the agents of production and cir- 
culation will differ widely from these real laws and will be 
merely the conscious expression of the apparent movements. 
The conceptions of a merchant, a stock gambler, a banker, are 
necessarily quite perverted. Those of the manufacturer are 
vitiated by the acts of circulation, to which their capital is sub- 
ject, and by the compensation of the general rate of profit.'*- 

Competition likewise plays a completely perverted role in 
these heads. If the limits of value and surplus-value are 

*^ It is a very naive, but also very correct remark that " Surely the fact that 
one and the same commodity may be had from different sellers at considerably 
different prices is frequently due to mistakes of calculation." (Feller and Older- 
mann. Das Ganze der kaufmannischen of Arithmetik, 7. Aufl., 1859.) This shows 
how purely theoretical, that is abstract, the determination oi prices becomes. 

X 



370 Capitalist Production. 

given, then it is easy to understand, in what manner the com- 
petition of capitals will transform values into prices of pro- 
duction and further into mercantile prices, and surplus-value 
into average profit. But without these limits, w^e cannot see 
any reason at all, why competition should reduce the average 
rate of profit to such and such a level instead of some other, 
should make it 15% instead of 1,500%. Competition at best 
can only reduce the rate of profit to one and the same level. 
But it does not contain any element, by which this level could 
be determined. 

From the point of view of merchants' capital, the turn-over 
itself takes on the guise of a determining element of prices. 
On the other hand, while the velocity of the turn-over of in- 
dustrial capital, in so far as it enables a certain industrial 
capital to exploit more or less labor, exerts a determining and 
limiting influence on the mass of j)rofit and thus on the aver- 
age rate of profit, this rate of profit exists as an external fact 
for the merchants' capital, and the internal connection of this 
rate with the production of surplus-value is entirely obliter- 
ated. If the same industrial capital, under otherwise equal 
circumstances, particularly with the same organic composi- 
tion, is turned over four times per year instead of twice, it 
produces twice as much surplus-value and, consequently, profit. 
And this becomes palpable, as soon and so long as this capital 
has the monopoly of that improved mode of production, to 
which it owes its accelerated turn-over. Vice versa, differ- 
ences in the times of turn-over in different lines of commerce 
manifest themselves in such a way that the profit made on the 
turn-over of some given commodity-capital is in an inverse ra- 
tio to the number of turn-overs of the money-capital which 
turns this commodity-capital over. Small profits and quick 
returns appears particularly to the shopkeeper as a principle, 
which he follow^s on principle. 

For the rest, it is a matter of course, that this law of turn- 
overs of merchants' capital holds good in each line of com- 
merce only for the average of turn-overs made by the entire 
merchants' capital invested in each particular line, and always 
without a consideration of any succession of alternating and 



Turn-over of Merchant's Capital. 371 

mutually compensating turn-overs of longer or shorter dura- 
tion. The cajDital of A, who deals in the same line as B, may 
make more or less than the average number of turn-overs. 
This does not alter the turn-over of the total mass of mer- 
chants' capital invested in this line. But this is of decisive 
moment for the individual merchant or shopkeeper. He 
makes in this case an extra profit, just as the industrial cap- 
italists make extra profits, if they produce under conditions 
more favorable than the average. If competition compels 
him, he can sell cheaper than his competitors without lower- 
ing his profit below the average. If the conditions, which 
would enable him to turn his capital over more rapidly, are 
themselves for sale, such as a favorable location of the shop, 
he can pay extra rent for it, that is to say, a portion of his 
surplus-profit is converted into ground rent. 



CHAPTER XIX. 

FINANCIAL CAPITAL. 



The purely technical movements performed by money in the 
process of circulation of industrial capital, and, as we may 
now add, of commercial capital, which assumes a part of the 
circulation movement of industrial capital as its own peculiar 
movement, — these movements, if individualised into an inde- 
pendent function of some particular capital that performs 
nothing but just this service, convert a capital into financial 
capital. In that case, one portion of the industrial capital, 
and of commercial capital, persists not only in the form of 
money, of money capital in general, but as money-capital, 
which performs only these technical functions. A definite 
part of the total social capital separates from the rest and in- 
dividualises itself in the form of money-capital, whose capi- 
talist function consists exclusively in performing the financial 
operations for the entire class of industrial and commercial 
capitalists. As in the case of the commercial capital, so in 
that of financial capital a portion of the industrial capital in 
process of function in circulation separates from the rest and 



372 Capitalist Production. 

performs these operations of the process of reproduction for 
all the other capital. These movements of such money-capi- 
tal, then, are once more merely movements of an individual- 
ised part of industrial cajjital in the process of reproduction. 

Capital appears as the first and last point of this movement 
only to the extent that capital is newly invested, as happens in 
accumulation. But for every capital, which is already in 
process, this first and last point appear merely as points of 
transit. To the extent that industrial capital, from the mo- 
ment of its exit from the sphere of production to that of its re- 
turn to it, passes through the metamorphosis C — M — C, 
M represents merely the final result of one phase of this met- 
amorphosis and becomes at once the starting point of its sup- 
plementing second phase, as we have already seen in the dis- 
cussion of the simple circulation of commodities. And al- 
though the C — M of industrial capital signifies always 
M — C — M for the commercial capital, nevertheless the ac- 
tual process for this last named capital, once that it has be- 
come engaged, is also C — M — C. But the commercial cap- 
ital passes continually through and simultaneously through 
the acts C — M and M — C, that is to say, there is not only 
one capital in the stage C — M, while another is in the stage 
M — C, but the same capital buys continually and sells con- 
tinually at the saniti time, on account of the continuity of the 
process of production. It is continually and simultaneously 
in both stages. While one of its parts is converted into 
money, to be reconverted later into commodities, another is 
simultaneously converted into commodities, to be reconverted 
into money. 

Whether the money serves here as a means of circulation or 
of payment, depends on the form of the exchange of commod- 
ities. In both cases, the capitalist has to pay out money con- 
tinually to many persons, and to receive money continually 
from many persons. This purely technical labor of paying 
money and receiving money constitutes an employment by it- 
self, which necessitates the making of balances, the balancing 
of accounts, so far as money serves as a means of payment. 
This labor belongs to the expenses of circulation, it does not 



Financial Capital. 373 

create any values. It is abbreviated by being organised as a 
special department of agents, or capitalists, who perform this 
work for all the rest of the capitalist class. 

A definite portion of the capital must be continually avail- 
able as a hoard, as potential money-capital. It constitutes 
a reserve of means of purchase, a reserve of means of pay- 
ment, unemployed capital in the form of money waiting to be 
put to work. And one portion of the capital continually re- 
turns in this form. This requires not only the collecting, 
paying, and bookkeeping operations, but also the storing of a 
hoard, which constitutes an operation by itself. This work 
consists indeed in a continual conversion of a hoard into 
means of circulation and means of payment, and its restora- 
tion to the form of a hoard by means of money secured through 
sales and due payments. This continuous movement of that 
part of capital, which exists in the form of money, separated 
from the function of capital itself, this purely technical func- 
tion causes its own labors and expenses, which belong to the 
expenses of circulation. 

The division of labor brings it about, that these technical 
operations, which are conditioned on the functions of capital, 
should be performed as much as possible for the entire capital- 
ist class by one class of agents, or capitalists, into whose 
hands it is concentrated as their exclusive function. We have 
here, as in the case of commercial capital, a division of labor 
in a twofold sense. It becomes a special business, and be- 
cause it is performed as a special business for the money- 
mechanism of the whole class, it is concentrated and performed 
on a large scale. And then a further division of labor takes 
place within this special business, on one hand by a separa- 
tion into various independent lines, on the other by a seg- 
mentation of tlie work within each office of these special lines. 
Large offices, many bookkeepers and cashiers, far going di- 
vision of labor, disbursing of money, receiving of money, bal- 
ancing of accounts, keeping of current accounts, storing of 
money, etc., all these things, separated from the acts that 
necessitate these technical operations, make of the capital 
advanced for these functions a financial capital 



374 Capitalist Production. 

The various operations, whose individualisation gives rise 
to special lines of financial business, follow from the different 
capacities of money itself and from its different functions, 
through which capital in its money-form must likewise pass. 

I have pointed out on a previous occasion, that the money 
business in general developed originally from an exchange of 
products between different communes. ^^ 

The financial business, the trade with money as a commod- 
ity, developed first out of international commerce. As soon 
as different national coins exist, the merchants buying in for- 
eign countries must exchange their national coins into foreign 
coins, and vice versa, or exchange different coins for uncoined 
pure silver or gold as international money. This gives rise to 
the business of money-exchange, which is one of the primitive 
foundations of modern financial business.^-* Out of it de- 
veloped the modern banks of exchange, in which silver (or 
gold) serve as world money — now called bank money or 
commercial money — as distinguished from current money. 

*^ Critique of Political Economy, p. 53. 

" " The great differences of coins themselves, as concerns their grain, and their 
coinage by many privileged princes and towns, necessitated the establishment of 
a business, which should enable merchants to use local money wherever any com- 
pensation between different coins was necessary. In order to be able to make cash pay- 
ments, merchants who traveled to a foreign market provided themselves with 
uncoined pure silver, or perhaps with gold. In the same way they exchanged 
the money received by them in local markets for uncoined silver or gold, when 
they prepared to return home. The business of exchanging money, the exchange 
of uncoined precious metals for local coins, and vice versa, thus became a wide- 
spread and paying business." (Hiillmann, Stadteivesen des Mittelalters. Bonn, 
1826-29, I, p. 4.37.) " Banks of exchange do not owe their name to the fact that 
they issue bills of exchange, ... but to the fact that they used to exchange 
coins. Long before the establishment of the Amsterdam Bank of Exchange in 
1609, there existed in the Dutch merchant towns money changers and exchange 
houses, even exchange banks. . . . The business of these money changers 
consisted in exchanging the numerous varieties of coin, that were brought into 
the country by foreign traders, for the current coin of the realm. Gradually their 
circle of activity extended. . . . They became the bankers and cashiers of 
modern times. But the government of Amsterdam saw a danger in the combi- 
nation of the cashier business with the exchange business, and in order to meet 
this danger, it was resolved to establish a large institution, which should be able 
to perform both the cashier and the exchange operations. This institution was 
the famous Amsterdam Bank of Exchange of 1609. In like manner, the exchange 
banks of Venice, Genoa, Stockholm, Hamburg, owe their origin to the continual 
necessity of changing money. Of all these, the Hamburg Exchange is the only 
one that is still doing business, because the need of such an institution is still felt 
m that merchants' town, which has no Mint of its own. Etc." (S. Vissering, 
Handboek van Praktische Staathuishoudkunde. Amsterdam, 1860, I, 247.) 



Financial Capital. 375 

The business of money-exchange, so far as it consists 
merely of notes of payment to travelers from one money-ex- 
changer in one country to another in another country, devel- 
oped as early as Roman and Grecian times out of thci simple 
money-exchange. 

The trade with gold and silver as commodities (raw mate- 
rials for the making of articles of luxury) forms the primi- 
tive basis of bullion trade, or of that trade, which promotes 
the functions of money as world money. These, functions, 
as previously explained (Volume I, chapter III, 3c), are two- 
fold : A currency back and forth between the various na- 
tional spheres of circulation for the purpose of balancing the 
international payments and for performing the migrations of 
capital in quest of interest; simultaneously with this move- 
ment, there is a movement of precious metals from their 
sources of production across the world market and a distri- 
bution of their supply over the various national spheres of cir- 
culation. In England, the goldsmiths still served as bankers 
during the gi-eater part of the iTtli century. The way in 
which the balancing of international accounts in the money 
trade is further developed, is not discussed here, any more 
than any points referring to the business of dealing in val- 
uable papers, in short, we leave out of consideration all special 
forms of the credit system, since this does not yet concern us 
here. 

In the shape of world money, national money strips off its 
local character; one national money is expressed in another, 
and thus all of them are finally reduced to their contents in 
gold or silver, while these two metals, being the two commodi- 
ties circulating as world money, are simultaneously reduced to 
their mutual ratios, which change continually. The money 
trader makes this intermediate business his special occupation. 
Money changing and bullion trading are thus the primitive 
forms of the money trade, and they arise from the twofold 
functions of money as national money and world money. 

The capitalist process of production, and commerce in gen- 
eral, even under precapitalist methods, imply: 

1 ) The accumulation of money in the shape of a hoard, that 



376 Capitalist Production. 

is, in the present case, the accumulation of that part of capi- 
tal, which must always be on hand in the form of money, as 
a reserve fund of means of payment and means of purchase. 
This is the first form of a hoard, such as it reappears under 
the capitalist mode of production, and as it forms in general 
with the development of merchants' capital, at least for the 
purposes of this capital. These remarks apply to national as 
well as international circulation. This hoard is in continu- 
ous flux, pours ceaselessly into circulation, and returns unin- 
terruptedly from it. The second form of a hoard is now that 
of fallow, unemployed, capital in the form of money, including 
newly accumulated and not yet invested money-capital. The 
functions first required by this fonnation of a hoard are those 
of safekeeping, bookkeeping, etc. 

2) This is connected by an expenditure of money in buying, 
its reception on selling, making and receiving of payments, 
balancing of payments, etc. The money dealer performs all 
these services at first as a simple cashier of the merchants and 
industrial capitalists."^^ 

" " The institution of cashiers has probably nowhere preserved its original and inde- 
pendent character so pure as in the Dutch merchant towns (see on the origin of 
the cashier business in Amsterdam, E. Lusac, Hollands Rykdom, part III). Its 
functions partly coincide with those of the old Amsterdam Bank of Exchange. 
The cashier receives from the merchants, who employ his services, a certain 
amount of money, for which he opens a ' credit ' for them in his books. Further- 
more they send him their due bills, which he collects for them and credits to 
their account. On the other hand, he makes payments on their notes {Kassiers 
briefjes) and charges their accounts with their current bills. He charges a small 
provision for these credits and debits, which yields him a corresponding remunera- 
tion for his labor only by the amount of business, which he can turn over be- 
tween them. If payments are to be balanced between two merchants, who both 
deal with the same cashier, then such payments are simply settled by booking 
them mutually, while the cashiers balance their mutual claims from day to day. 
The cashier's business, then, consists at bottom of this promotion of payments. 
Therefore it excludes industrial enterprises, speculations, and the opening of 
blank credits; for it must be a rule in this business that the cashier makes no 
payment to any one keeping an account with him above his credit." (Vissering, 
1. c, p. 134.) On the banking associations of Venice: "The requirements and 
locality of Venice, where the carrying of cash is more inconvenient than in other 
places, induced the large merchants of that town to found banking associations 
under due safeguards, supervision, and management. The members of such an 
association deposited certain sums, on which they drew checks for their creditors, 
whereupon the paid sum was deducted on the page of the debtor in the book kept 
for that purpose and added to the sum, which was credited in the same book to 
the creditor. This is the first beginning of the socalled giro banks. These asso- 
ciations are indeed old. But if they are attributed to the 12th century, they are 



Financial Capital. 377 

Dealing in money is fully developed, even in its first stages, 
as soon as its ordinary functions of lending and borrowing are 
supplemented by the credit business. Of this more in the fol- 
lowing part, which deals with interest-bearing capital. 

The bullion trade itself, the transfer of gold or silver from 
one country to another, is merely the result of the trade in com- 
modities. It is determined by the quotations of bills of ex- 
change, which express the stand of the international payments 
and of the rate of interest on the different markets. The 
bullion trader as such acts but as an intermediary between re- 
sults. 

In discussing the way, in which the movements and forms 
of money develop out of the simple circulation of commodi- 
ties, we have seen (Vol. I, chap. Ill), that the movements of 
the mass of money circulating as a means of purchase and 
payment are determined by the metamorphosis of commodi- 
ties, by the volume and velocity of this metamorphosis. And 
we know now, that this metamor|3hosis is itself but a phase in 
the entire process of reproduction. As for the movement of 
the raw materials of money — gold and silver — from their 
places of production, it resolves itself in a direct exchange of 
commodities, an exchange of gold and silver as commodities 
for other commodities. Hence it is as much a phase of the 
exchange of commodities as the securing of iron or other 
metals by means of exchange. And so far as the movements 
of precious metals on the world-market are concerned (we 
leave aside at this point the consideration of their movements 
to the extent that they express the transfer of capital by loans, 
a transfer, which takes place also in the shape of commodity- 
capital), they are quite as much determined by the interna- 
tional exchange of commodities as the movements of money 
as a national means of purchase and payment are determined 
by the exchange of commodities on the home market. The 
emigrations and immigrations of precious metals from one na- 
tional sphere to another, which are caused by a depreciation 
of national coins, or by a double standard, are extraneous to 

confounded with the State Loan Institute, which was established in 1171." (Hiill- 
mann, 1. c. 550.) 



2y8 Capitalist Production. 

the circulation of money as such and represent merely correc- 
tions of deviations brought about arbitrarily by state de- 
crees. And finally, as concerns the formation of hoards, which 
constitute reserve funds for means of purchase and ])ayment, 
either for the home trade or for foreign trade, and likewise 
of hoards, which represent merely a form of capital tempora- 
rily unemployed, they are both necessary precij)itates of the 
process of circulation. 

Just as the entire circulation of money, in its volume, its 
forms, and movements, is purely a result of the circulation 
of commodities which in its turn represents from the capital- 
ist point of view only the process of circulation of capital (in- 
cluding the exchange of capital for revenue, and of revenue 
for revenue, so far as the expenditure of revenue is realised 
in retail trade), so it is a matter of course, that the trade in 
money does not promote merely the circulation of money, a 
mere result and phenomenon of the circulation of commodi- 
ties. This circulation of money itself, as a phase in the circu- 
lation of commodities, is a fundamental requisite for the trade 
in money. This trade promotes merely the technical opera- 
tions of money-circulation, concentrating, abbreviating, sim- 
plifying them. The trade in money does not form the hoards, 
but supplies the technical means by which the formation of 
hoards may be reduced to its economical minimum (so far as 
it is voluntary, that is, so far as it is not an expression of un- 
employed capital or of disturbances of the process of reproduc- 
tion). For if the reserve funds of means of purchase and 
payment are managed for the capitalist class as a whole, they 
need not be so large as they would have to be, did each capi- 
talist manage his own. The trade in money does not buy the 
precious metals, but merely promotes their distribution, as 
soon as the trade in commodities has bought them. The trade 
in money facilitates the squaring of balances, so far as money 
serves as a means of payment, and reduces by the artificial 
mechanism of these compensations the amount of money re- 
quired for this purpose. But it determines neither the con- 
nections, nor the volume, of the mutual payments. For in- 
stance, the bills of exchange and checks, which are exchanged ; 



Financial Capital. 379 

for one another in banks and clearing houses, reflect quite in- 
dependent transactions and are the results of real operations. 
It is merely a question of a better technical compensation of 
these results. So far as money serves as a means of purchase, 
the volume and number of purchases and sales are quite inde- 
pendent of the money trade. This trade cannot do anything 
but abbreviate the technical operations that go with buying 
and selling, and by this means it is enabled to reduce the 
amount of cash money required to turn the commodities over. 

The money trade in its pure form, which we consider here, 
that is, the money trade not complicated by the credit system, 
is concerned only with the technique of a certain phase of the 
circulation of commodities, namely with the circulation of 
money and the different functions of money following from its 
circulation. 

This distinguishes the money trade essentially from the 
trade in commodities, which promotes the metamorphosis of 
commodities and their exchange, or which gives even to this 
process the aspect of a process of a certain capital separated 
from the industrial capital. While, therefore, the commer- 
cial capital has its own form of circulation, M — C — M, in 
which the commodity changes hands twice and thereby re- 
covers the money, in distinction from C — M — C, in which 
the money changes hands twice and thereby promotes the ex- 
change of commodities, there is no such special form of circu- 
lation, which can be demonstrated in the case of financial cap- 
ital. 

To the extent that money-capital is advanced by a separate 
class of capitalists for the technical promotion of the circula- 
tion of money — a capital representing on a reduced scale the 
additional capital, which the merchants and industrial capital- 
ists must otherwise advance themselves for these purposes — 
the general form of capital, M — M', is found also here. By 
the advance of M, the advancing capitalist secures M -|- ^ M- 
But the promotion of the transaction M — M' does not con- 
cern itself in this case with the objective materials, but only 
with the technical processes of this metamorphosis. 

It is evident, that the mass of money-capital, with which the 



380 Capitalist Production. 

money dealers have to operate, is the money-c&pJt&l of tlie mer- 
chants and industrial capitalists in process of circulation, and 
that the operations of the money dealers aro merely those orig- 
inally performed by the merchants and industrial capitalist. 

It is equally evident, that the profit of the money dealers is 
nothing but a deduction from the surplus-value, since they 
are operating merely with already realised values (even when 
they have been realised in the form of creditors' claims). 

As in the trade with commodities, so in that with mone;y a 
duplication of functions takes place. For a portion of the 
technical operations connected with the circulation of money 
must be carried out by the dealers and producers of commodi- 
ties themselves. 



CHAPTER XX. 



HISTORICAL DATA CONCEENING MERCHANTS CAPITAL, 

The particular fonn^, in which tlie commercial capital and 
financial capital accumulate money, will be discussed in the 
next part of this volume. 

From what has gone before it follows as a matter of course 
that nothing can be more absurd than to consider merchants' 
capital, whether in the shape of commercial or of financial 
capital, as some particular kind of industrial capital, such as 
that invested in mining, agriculture, stock raising, manufac- 
ture, transportation, etc., which constitute side lines of indus- 
trial capital formed by division of social labor and thus differ- 
ent spheres for its investment. The simple observation, that 
every industrial capital, when in the circulation phase of its 
process of reproduction, performs in the shape of commodity- 
capital and money-capital the very same functions, wdiich ap- 
pear as exclusive functions of the two forms of merchants' 
capital, should make such a crude conception impossible. On 
the other hand, in commercial and financial capital the differ- 
ences between the productive nature of industrial capital and 
its functions in the sphere of circulation are independently in- 



Historical Data. 381 

dividualised, by transferring definite fonns and functions as- 
sumed momentarily by industrial capital into independent 
forms and functions of separate portions of capital perma- 
nently tied up in circulation. A changed form of industrial 
capital is Avidely different from distinctions between produc- 
tive capitals following from the nature of the various lines of 
industry. 

Aside from the brutality with which the economist ordi- 
narily handles distinctions of form, in which he is interested 
only so far as their material side is concerned, the vulgar econ- 
omist is influenced by two other reasons in his violation of 
distinctions. There is, in the first place, his incapability 
to explain the peculiar nature of mercantile profit. In the 
second place, he writes for the apologetic purpose of proclaim- 
ing his opinion, that the process of production by its very na- 
ture, is the source of such forms as commodity-capital and 
money -capital, or later of merchants' capital and financial 
capital, instead of showing that they are due to the specific 
form of capitalist production, which is conditioned above all 
on the circulation of commodities and therefore of money. 

If commercial capital and financial capital do not differ 
from the production of grain any more than this differs from 
stock raising and manufacture, then it is evident that produc- 
tion and capitalist production are one and the same thing, 
and that especially the distribution of the social products 
among the members of society for the purpose of productive 
or individual consumption need no more be promoted by mer- 
chants and bankers than the consumption of meat by stock 
raising or that of clotlies by their manufacture."**^ 

*" Smart Mr. Roscher has figured out that, since certain people designate trade 
as a mediation between producers and consumers, "one" might just as well 
designate production itself as a mediation of consumption (between whom?), and 
this implies, of course, that the merchants' capital is as much a part of the 
productive capital as agricultural and industrial capital. In other words, because 
I can say, that man can mediate his consumption only by means of production 
(and he has to do this even without getting his education at Leipsic), or that 
labor is required for the appropriation of the products of nature (which might be 
called a mediation), it follows, that a mediation arising from a specific form of 
production — a real mediation — has the same absolute character and rank of a 
necessity. The word mediation settles everything. Moreover, the merchants are 
not mediators between producers and consumers (leaving out of consideration con- 
sumers which do not produce), but mediators of the exchange of products of 



382 Capitalist Production. 

The great economists, such as Smith, Eicardo, etc., are em- 
barrassed over mercantile capital as a special kind, since they 
analyse the basic form of capital, industrial capital, and take 
liotice of capital of circulation (commodity-capital and money- 
japital) only to the extent that it is a phase in the process of 
♦eproduction of all capital. The rules concerning the forma- 
tion of value, profit, etc., which are directly deduced from an 
analysis of industrial capital, do not fit merchants' capital di- 
rectly. Therefore these economists leave merchants' capital 
entirely out of consideration and mention it only as a kind of 
industrial capital. Whenever they treat of it particularly, 
as Eicardo does in dealing with foreign commerce, they seek 
to demonstrate that it does not create any value (and conse- 
quently no surplus-value). But Avhatever is true of foreign 
commerce, applies also to home commerce. 



Hitherto we have considered merchants' capital merely from 
the point of view of the capitalist mode of production, and 
within its limits. However, not only commerce, but also mer- 
chants' capital, is older than the capitalist mode of produc- 
tion. In fact, it represents historically the oldest free exist- 
ence of capital. 

As we have already seen that the money trade and the cap- 
ital advanced for it require nothing for their existence but the 
presence of commerce on a large scale, and further of com- 
mercial capital, it is only the latter, which we have to con- 
sider here. 

Since commercial capital is tied up in the circulation, and 
since its function consists exclusively in promoting the ex- 
change of commodities, it follows that it requires no other 
condition for its existence — aside from undeveloped forms 
arising from direct barter — but those indispensable for the 
/simple circulation of money and commodities. Or rather, 
tlie circulation of money is the condition of its existence. iNc 
matter what may be the basis on which production is carried 
on, which throws its products into circulation as commodi- 

producers among themselves. They are but middle men in an exchange, which 
in a thousand cases takes place without them. 



Historical Data. 383 

ties • — ■'.vhetlier it be the basis of a primitive commune, or 
of slave production, or of small agricultural, small bourgeois, 
or capitalist — the character of the products as commodities 
is not altered, and as commodities they have to pass through 
the process of exchange and through the forms incidental to 
it. The extremes, between which merchants' capital acts as a 
mediator, exist for it as given propositions, just as they do for 
money and its movements. The only requisite is that these 
extremes should be present as commodities, regardless of 
whether production is wholly a production of commodities, or 
whether only the surplus of the independent producers over 
the immediate needs satisfied by their production is thrown on 
the market. The merchants' capital promotes only the move- 
ments of these extremes, these commodities, which are prem- 
ises of its own existence. 

The extent to which j^roduction ministers to commerce and 
supplies the merchants, depends on the mode of production. 
It reaches its maximum under a fully developed capitalist 
production, in w^hich the product is primarily produced as a 
commodity, not for direct subsistence. On the other hand, 
on the basis of every mode of production, commerce promotes 
the production of surplus products destined for exchange, for 
the purpose of increasing the enjoyments of wealth of the 
producers (who are here understood to be the owners of the 
products). Commerce impregnates production more and more 
with the character of a production for exchange. 

The metamorphosis of commodities, their movements, con- 
sist, 1) materially, of an exchange of different commodities 
for one another; 2) formally, of a conversion of commodities 
into money by sale, and a conversion of money into commodi- 
ties by purchase. And the functions of merchants' capital 
resolve themselves into these functions of buying and selling 
commodities. It promotes merely the exchange of commodi- 
ties, which must be conceived at the outset as being something 
more than a bare exchange of commodities between direct pro- 
ducers. Under slavery, feudalism, vassalage, so far as prim- 
itive organisations are concerned, it is the slave holder, the 
feudal lord, the tribute collecting state, who are the owners 



384 Capitalist Production. 

and sellers of the products. The merchant buys and sells for 
many. In his hands are concentrated purchases and sales, 
and purchase and sale cease consequently to be dependent on a 
direct necessity of the buyer (as a merchant). 

But whatever may be the social organisation of the spheres 
of production, whose exchange of commodities the merchant 
promotes, his wealth exists always in the form of money and 
his money always serves as capital. Its form is always 
M — C — M'. Money, the independent form of exchange 
value, is his starting point, expansion of the exchange value 
his independent purpose. He occupies himself with the ex- 
change of commodities and the operations incidental to it, 
which are separated from production and performed by a non- 
producer, and this is merely a means to increase wealth and at 
that wealth in its most general social form, exchang e valu e. 
His compelling motive and compelling end are the conversion 
of M into M + A M. The transactions M — C and C — M, 
which promote the act M — M', appear merely as stages of 
transition in this conversion of M into M -f" A M. This 
M — C — M' is the characteristic movement of merchants' 
capital which distinguishes it from C — M — C, the ex- 
change of commodities between the producers themselves, 
which has for its ultimate end the exchange of use-valueg. 

To the extent that production is undeveloped, the money 
wealth Avill be concentrated in the hands of merchants, will 
appear in the specific form of merchants' wealth. 

Within the capitalist mode of production — that is, as soon 
as capital has seized hold of production and given to it a 
wholly changed and specific form — merchants' capital a]> 
pears merely as a capital with a specific function. But in 
all previous modes of production, and so much the more pro- 
duction ministers to the direct wants of the producers them- 
selves, merchants' capital appears as the capital which per- 
forms the function of capital. 

There is, then, no difficulty in understanding how it is that 

' that merchants' capital is the historical form of capital long 

before capital has subjected production to its control. Its 

existence and development to a certain level are themselves 



I 



Historical Data. 385 

historical premises for the development of capitalist produc- 
tion. For they are, 1), premises for the concentration of 
moneyed wealth, and 2), the capitalist mode of production is 
conditioned on production for exchange, commerce on a large 
scale instead of with a few individual customers, and this re- 
quires also a merchant, who does not buy for the satisfaction 
of his own individual wants, but concentrates the transactions 
of many buyers in one commercial transaction. On the other 
hand, all development of merchants' capital tends to give to 
production more and more the character of a production for 
exchange and to impregnate the products more and more with 
the character of commodities. But the development of mer- 
chants' capital by itself is incapable of bringing about and 
explaining the transition from one mode of production to an- 
other, as we shall presently see. 

Within capitalist production, the merchants' capital is re- 
duced from its former independent existence to a special phase 
in the investment of capital in general, and the compensation 
of profits reduces its rate of profits to the general average.. 
Then it serves only as an agent of productive capital. The 
particular social conditions, which formed together with the 
development of merchants' capital, are then no longer para- 
mount. On the contrary, where merchants' capital still pre- 
dominates, we find backward conditions. TJiis is true even of 
one and the same country, in which, for instance, the pure 
merchants' towns form far better analogies with past condi- 
tions than the manufacturing towns.^''' 

An independent and prevailing development of capital in 
the shape of merchants' capital signifies that production is not 
subject to capital, in other words, it means that capital devel- 

"Mr. W. Kiesselbach (in his Dcr Gang (Jes Welthandels im Mittelalter, 1860) 
is indeed still living in the conceptions of a world, in which the merchants' 
capital is the general form of capital. He has not the least inkling of the 
modern meaning of capital, any more than Mommsen has, when he speaks in^^s 
history of Rome of "capital" and "the rule of capital." In modern Englisli 
history, the commercial estate proper and the merchant towns are also political 
reactionaries and in league with the landed and financial aristocracy against 
industrial capital. Compare, for instance, the political role of Liverpool as against 
Manchester and Birmingham. The complete rule of industrial capital was not 
acknowledged by English merchants' capital and moneyed interests until after 
the abolition of the duties on corn, etc. 

y 



386 Capitalist Production 

ops on the basis of a mode of jDroduction independent and out- 
side of it. The independent development of merchants' cap- 
ital stands therefore in an inverse ratio to the general econo- 
mic development of society. 

The independent mercantile wealth, as a prevailing form of 
capital represents the independent establishment of the proc- 
ess of circulation as against its extremes, and these extremes are 
the exchanging producers themselves. These extremes remain 
independent of the process of circulation, just as this circula- 
tion remains independent of them. The product becomes a 
commodity in this case by way of commerce. It is commerce 
which, under such conditions, develops products into commodi- 
ties ; it is not the produced commodity itself which, by its 
movements, gives rise to commerce. Capital in the capacity 
of capital appears here first in the process of circulation. In 
the process of circulation money first develops into capital. 
In the circulation, the products first assume the character of 
exchange values, of commodities and money. Capital can and 
must form in the process of circulation, before it learns to 
control the extremes, that is, the various spheres of produc- 
tion between which circulation intervenes as a mediator. The 
circulation of money and commodities may act as an inter- 
mediary between spheres of production of widely different 
organisation, whose internal structure is still, predominantely 
adjusted to the production of use-values. This independent 
status of the process of circulation, by which various spheres 
of production are connected by means of a third link, ex- 
presses two facts. On tlie one hand it shows that the cir- 
culation has not yet seized hold of production, but as yet 
regards it as an existing fact. On the other hand, it shows 
that the process of production has not yet absorbed circulation 
and made a phase of production of it. But in capitalist pro- 
duction, both of these things are accomplished. The process 
of production rests wholly upon the circulation, and the cir- 
culation is a mere phase of transition of production, in which 
the product, having been created as a commodity, is realised 
in money and its elements of production replaced by products, 
which have likewise been created in the shape of commodities. 



I 



Historical Data. 387 

That form of capital, which developed directly in circulation, 
the merchants' capital, appears here merely as one of the forms 
of capital in its process of reproduction. 

The rule, that the independent development of merchantsN 
capital is inversely proportioned to the degree of development/ 
of capitalist production, becomes particularly manifest in the 
history of the carrying trade, for instance, among the Vene- 
tians, Genoese, Dutch, etc., where the principal gains were 
not made by the exportation of the products of the home in- 
dustries, but by the promotion of the exchange of products of 
commercially and otherwise economically undeveloped societies 
and by the exploitation of both spheres of production.^^ 

Here the merchants' capital is pure, separated from the ex- 
tremes, the spheres of production, between which it intervenes. 
This is one of the main sources of its formation. But this 
monopoly of the carrying trade disintegrates, and with it this 
trade itself, in proportion as the economic development of peo- 
ples advances, whom it exploits at each end of its course, and 
whose backward development formed the basis of this trade. 
In the carrying trade, this appears not only as the disintegra- 
tion of a special line of commerce, but also as the disintegration 
of the supremacy of jDurely commercial nations and of their 
commercial wealth in general, which rested upon this carrying 
trade. This is but one of the special forms, which expresses the 
subordination of the commercial capital to the industrial cap- 
ital with the advance of cajDitalist production. The manner 
in which merchants' capital behaves wherever it rules over 
production is drastically illustrated, not only by the colonial 
economy (the colonial system) in general, but particularly by 
the methods of the old Dutch East India Company. 

Since the movement of merchants' capital is M — C — M', 

*' The inhabitants of merchant towns imported refined manufactured goods and 
expensive articles of luxury from rich countries, and thus offered incentives to 
the vanity of the large landowners, who eagerly bought these goods and paid large 
quantities of raw materials from their lands for them. Thus the commerce of a 
large part of Europe during this period consisted in an exchange of the raw 
materials of one country for the manufactured products of some industrially de- 
veloped country. As soon as this taste became general and created a considerable 
demand, the merchants, in order to save the expenses of freight, began to 
establish similar manufactures in their own countries. (Adam Smith, Book III, 
chapter III.) 



388 , Capitalist Production. 

the profit of the merchant is made, in the first place, only 
within the jDrocess of circnlation, by the two transactions of 
buying and selling; and in the second place, it is realised in 
the last transactions, the sale. It is a profit upon alienation. 
At first sight, a pure and independent commercial profit seems 
impossible, so long as products are sold at their value. To 
buy. cheap in order to sell dear is the rule of trade. It is not 
supposed to be an exchange of equivalents. The conception 
of value is included in it only to the extent that the individual 
commodities all have a value and are to that extent money. 
In quality, they are all expressions of social labor. But they 
are not values of equal magnitude. The quantitative ratio, in 
which products are exchanged, is at first quite arbitrary. 
They assume the form of commodities inasmuch as they are 
exchangeable, that is, inasmuch as they may be expressed in 
terms of the same third thing. The continued exchange and 
the more regular reproduction for exchange reduces this arbi- 
trariness more and more. But this applies not at once to the 
producer and consumer, but only to the mediator between 
them, the merchant, wdio.comjiares the money-prices and pock- 
ets their difl^erence. By his own movements he establishes the 
equivalence of commodities. 

The merchants' capital is at first merely the intervening 
movement betw^een extremes not controlled by it and between 
premises not created by it. 

Just as from the mere form of the circulation of commodi- 
ties, C — M — C, money rises not only as a measure of value 
and medium of circulation, but also as the absolute form of the 
commodity and thus of wealth, in the form of a hoard, so that 
its conservation and accumulation as money become its life's 
purpose, so money, in the shape of a hoard, issues from the 
mere form of the circulation of merchants' capital, M — C — 
M', as something which is preserved and increased only by its 
alienation. 

The trading nations of the ancients existed like the gods of 
Epicure in the intermediate worlds of the universe, or rather 
like the Jews in the pores of Polish society. The trade of the 
first independent and highly developed merchant towns and 



Historical Data. 389 

trading nations rested as a pure carrying trade upon the bar- 
barism of the producing nations between whom they inter- 
vened. 

In the p recapitalist stages of society, commerce rules in- 
d ustry. T he^ reverse is true of modern society. Qf _course , 
commerce will have more or less of a reaction on the societies, 
between which it is carried on. It will subject production 
more and more to exchange value, by making enjoyments and 
subsistence more dependent on the sale than on the immediate / 
use of the products. Thereby it dissolves all old conditions. 
It increases the circulation of money. It seizes no longer 
merely upon the surplus of production, but corrodes produc- 
tion itself more and more, making entire lines of production 
dependent upon it. However, this dissolving effect depend^ 
to a large degree on the nature of the producing society. 

So long as merchants' capital promotes the exchange of 
products between undeveloped societies, commercial profit does 
not only assume the shape of outbargaining and cheating, but 
also arises largely from these methods. Leaving aside the 
fact that it exploits the difference in the prices of production 
of the various countries (and in this respect it tends to level 
and fix the values of commodities), those modes of production 
bring it about that merchants' capital appropriates to itself 
the overwhelming portion of the surplus-product, either in its 
capacity as a mediator between societies, which are as yet 
largely engaged in the production of use-values and for whose 
economic organisation the sale of that portion of its product 
which is transferred to the circulation, or any sale of products 
at their value, is of minor importance ; or, because under those 
former modes of production, the principal owners of the sur- 
plus-product, with whom the merchant has to deal, are the 
slave holder, the feudal landlord, the state (for instance,, the 
oriental despot), and they represent the wealth and luxury, 
which the merchant tries to trap, as Adam Smith correctly 
scented in that passage on feudal times, which I have quoted 
above. Merchants' capital in its supremacy everywhere stands \ 
for a system of robbery,^^ and its development, among the ■ 

*' " Now there is among merchants much complaint about the nobles or robbers, 



390 Capitalist Production. 

trading nations of old and new times, is always connected with 
plundering, piracy, snatching of slaves, conquest of colonies. 

\ See Carthage, Eome, and later Venetians, Portuguese, Dutch, 

Vtc. 

/ The development of commerce and merchants' capital brings 

/ forth everywhere the tendency toward production of exchange 
/ values, increases its volume, multiplies and monopolises it, de- 
i velops money into world money. Commerce therefore has 
everywhere more or less of a dissolving influence on the pr(j- 
ducing organisations, which it finds at hand and whose differ- 
ent forms are mainly carried on with a view to immediate 
ase. To what extent it brings about a dissolution of the old 
mode of production, depends on its solidity and internal artic- 
vilation. And to what this process of dissolution will lead, in 
other words, what new mode of production will take the place 
of the old, does not depend on commerce, but on the character 
of the old mode of production itself. In the antique world 
the efi^ect of commerce and the development of merchants' 
capital always result in slave economy ; or, according to what 
the point of departure may be, the result may simply turn out 
to be the transformation of a patriarchal slave system devoted 

because they must trade under great danger and run the risk of being kidnapped, 
beaten, blackmailed, and robbed. If they suffered these things for the sake of 
justice, the merchants would be saintly people . . . But since such great 
wrong and unchristian thievery and robbery are committed all over the world 
by merchants, and even among themselves, is it any wonder that God should pro- 
cure that such great wealth, gained by wrong, should again be lost or stolen, 
and they themselves hit over their heads or made prisoners? . . . And the 
princes should punish such unjust bargains with due rigor and take care that 
their subjects shall not be so outrageously abused by merchants. Because they 
don't do so, God employs knights and robbers, and punishes through them the 
merchants for the wrongs committed, and uses them as his devils, just as he 
plagues Egypt and all the world with devils, or persecutes with enemies. In the 
same way he beats one boy through another, without thereby insinuating that 
knights are any the less robbers than merchants, although the merchants daily 
rob the whole world, while a knight may rob one or two once or twice in a year." 
"Go by the word of Esau: Thy princes have become the companions of robbers. 
For they hang the thieves, who have stolen a gulden or a half gulden, but they 
associate with those, who rob all the world and steal with greater assurance 
than all others, that the proverb may remain true: Great thieves hang little 
thieves; and as the Roman senator Cato said: Mean thieves lie in prisons and 
stocks, but public thieves are clothed in gold and silks. But what will God say 
finally? He will do as he said to Ezekiel, he will amalgamate princes and 
merchants, one thief with another, like lead and iron, as when a city burns down, 
leaving neither princes nor merchants." (Martin Luther, Biicher vom Kauf- 
handel und Wucher. Vom Jahr, 1527.) 






I 



Historical Data. 391 

to the production of direct means of subsistence into a similar 
system devoted to the production of surplus-value. However, 
in the modern world, it results in the capitalist mode of pro-i 
duction. From these facts it follows, that these results were 
conditioned on quite other circumstances than the mere in- 
fluence of the development of merchants' capital. 

It follows from the nature of the case that as soon as town 
industry as such separates from agricultural industry, its prod- 
ucts are from the outset commodities and require for their sale 
the intervention of commerce. The leaning of commerce upon 
the development of the towns, and, on the other hand, the de- 
pendence of the towns upon commerce, are to that extent in- 
telligible. However, in what measure industrial development 
will keep step with this development, depends upon quite 
other circumstances. Already ancient Rome, in its later re- 
publican days, developed merchants' capital more highly than 
it had ever existed in the antique world, without any progress 
in the development of crafts, while in Corinth and in other 
Grecian towns of Europe and Asia Minor the development of 
commerce was accompanied by highly developed crafts. On 
the other hand, in direct opposition to the development of towns 
and its conditions, the trading spirit and the development of 
commerce are frequently found among unsettled nomadic 
peoples. 

There is no doubt — and it is precisely this fact which 
has led to many wrong conceptions — that in the 16th and 
17th centuries the great revolutions, which took place in com-' 
nierce with the through geographical discoveries and rapidly \ 
increased the development of merchants' capital, form one of ,1 
the principal elements in the transition from feudal to capi- .' 
talist production. The sudden expansion of the world market,; 
the multiplication of the circulating commodities, the zeal? 
displayed among the European nations in the race after the 
products of Asia and the treasures of America, the colonial 
system, materially contributed toward the destruction of the 
feudal barriers of production. However, the modern mode 
of production, in its first period, the manufacturing period, 
developed only in j)laces, where the conditions for it had been 



392 Capitalist Production. 

previously developed during medieval times. Compare, for 
instance, Holland with Portugal. ^*^ And, on the other hand, 
when in the 16th, and partially still in the 17th, century the 
sudden expansion of commerce and the creation of a new world 
market exerted an overwhelming influence on the overthrow 
of the old mode of production and the rise of the capitalistic 
one, this was accomplished on the basis of the already created 
capitalist mode of production. The world market forms itself 
the basis of this mode of production. On the other hand, the 
immanent necessity of this production to produce on an ever 
enlarged scale tends to extend the world market continually, 
so that it is not commerce in this case which revolutionises in- 
dustry, but industry which continually revolutionises com- 
merce. The commercial supremacy itself is now conditioned 
on the greater or smaller prevalence of the conditions for a 
large industry. Compare for instance, England and Holland. 
The history of the decline of Holland as the ruling commercial 
nation is the history of the subordination of merchants' capital 
to industrial capital. The obstacles presented by the inter- 
nal solidity and articulation of precapitalistic, national, modes 
of production to the corrosive influence of commerce is strik- 
ingly shown in the intercourse of the English with India and 
China. The broad basis of the mode of production is here 
/formed by the unity of small agriculture and domestic indus- 
(try, to which is added in India the form of communes resting 
\pon common ownership of the land, which, by the way, was 
likewise the original form in China. In India, the English 
exerted simultaneously their direct political and economic 
power as rulers and landlords, for the purpose of disrupting 
these small economic organisations.^^ The English commerce 

*" How overweening fishing, manufacture, and agriculture were as a basis in 
the development of Holland, aside from other circumstances, has already been 
explained by writers of the 18th century, for instance, by Massie. In contradis- 
tinction to the former view, which underrated the volume and importance of the 
commerce of Asia, of antiquity, and of the Middle Ages, it has now become the 
custom to overestimate it extraordinarily. The best remedy against this conception 
is a study of the imports and exports of England in the beginning of the 18th 
century and their comparison with modern imports and exports. And yet this 
18th century commerce was incomparably greater than that of any former trading 
nation. (See Anderson, History of Commerce.) 

" If any nation's history, then it is the history of the English management of 



Historical Data. 393 

exerts a revolutionaiy influence on these organisations and 
tears tliem apart only to the extent that it destroys by the low 
prices of its goods the spinning and weaving industries, which 
are an archaic and integral part of this unity. And even so 
this work of dissolution is proceeding very slowly. It pro- 
ceeds still more slowly in China, where it is not backed up by 
any direct political power on the part of the English. The 
great economy and saving in time resulting from the direct 
connection of agriculture and manufacture offer here the most 
dogged resistance to the products of great industries, whose 
prices are everywhere perforated by the dead expenses of their 
process of circulation. On the other hand, Russian com- 
merce, unlike the English, leaves the economic basis of Asiatic 
production untouched.^^ 

The transition from the feudal mode of production takes 
tw;o roads. The^^xrodtwer becomes a merchant and capitalist, 
in contradistinction from agricultural natural economy and 
tha_guil_(^€ncircled handicrafts of medieval town industry. 
This is the really revolutionary way. O r, the merchan t takes 
possession in a direct way o£_production. WhileJ;his way 
serves historically as a mode of transition — instance the Eng- 
lish~cIothier of the 17th century, who brings tlie_ weavers, al- 
thougHjthey remain independently at work, under his control 
by selling^ wool to them and buying cloth from them — never- 
theless it cannot by itself ^o much for the overthrow of the old 
iaode_oX,pxaduction, but rather preserves it and uses it as its/ 
premise. For example, even up to the middle of the 19tli 
century the manufacturer in the French silk industry and in 
the English hosiery and lace industries was but nominally a 
manufacturer, and merely a merchant in point of fact, who 
permitted the weavers to continue their Avork in the old un- 

India which is a string of unsuccessful and really absurd (and in practice in- 
famous) experiments in economics. In Bengal they created a caricature of Eng- 
lish landed property on a large scale; in southeastern India a caricature of small 
a'lotment property; in the Northwest they transformed to the utmost of their 
ability the Indian commune with common ownership of the soil into a caricature of 
itself. 

'^ Since Russia has begun making frantic exertions to develop its own capitalist 
production, which is exclusively dependent upon its home market and the neigh- 
boring Asiatic states, this is also gradually changing.— F. E. 



394 Capitalist Production. 

organised way and exerted only the control of the merchant, 
for whom thej work in reality. ^^ This method is everywhere 
an obstacle to a real cajjitalist mode of production and de- 
clines with the development of the latter. Without revolu- 
tionising the mode of production, it deteriorates merely the 
condition of the direct producers, transforms them into mere 
wage workers and proletarians under worse conditions than 
those who have already been placed under the immediate con- 
trol of capital and absorbs their surplus-labor on the basis of 
the old mode of production. The same conditions exist in a 
somewhat modified form in the London furniture industry, so 
far as it is carried on by handicrafts. Particularly in the 
Tower hamlets it is practised on a very extensive scale. The 
whole production is divided into numerous separate lines in- 
dependent of one another. One business makes only chairs, 
another only tables, a third only bureaus, etc. But these lines 
of business themselves are run more or less like crafts, by 
one small master with a few journeymen. ^^Tevertheless the 
output is too large to work directly for private persons. The 
products are bought by owners of furniture stores. On Sat- 
urdays the master sees them and sells his product, and the 
transaction is closed with as much haggling as is done in a 
pawnshop over the loan on this or that piece. The masters 
need this weekly sale, were it for no other reason than to buy 
more raw materials for next week and pay wages. Under 
these circumstances, they are really only middlemen be- 
tween their employes and the merchants. The merchant is 
the real capitalist, who pockets the largest share of the sur- 
plus-value.^^ 

A similar condition exists in the transition to manufacture 
from lines, which were formerly carried on as handicrafts or 
as sidelines to rural industries. According to the development 

^^ The same is true of the ribhon and basting makers and silk weavers in the 
Rhine districts. Near Crefeld even a railroad has been built for the intercourse 
of these rural hand weavers with the "manufacturer" in the city, but has ' later 
been tied up, together with the handloom weavers themselves, by the mechanical 
weaving industry. — F. E. 

"This system has been developed since 1865 on a still larger scale. Details 
concerning it are contained in the First Report of the Select Committee of the 
House of Lords on the Sweating System, London, 1S88. — F. E. 



Historical Data. 



395 



of such small independent businesses — which may even em- 
ploy machinery that admits of a craftslike operation — the 
transition to large scale industry takes place. The machine is 
driven by steam, instead of by hand. This is the case, for in- 
stance, of late in the English hosiery industry. 

T4iere-J^^_jionsequently^_a^Jhreefoldjtransition. Eirat,^ the 
merchant becomes directly an industrial capitalist. This is 
the ca se in cr afts con ditioned on j wmrierce, especially indus- 
tije s producing luxuries, whi ch ar e^importeTlpy the merchants 
to gether w ith the raw m aterials and laborers _frqni foreign ' 
co unt ri es^^as they were in Italy from Constantinople in the "^ 
15th century. I n the s ^ond ^lace, tha mercliantjconsBrts the 
snia TT masters into his middlemen or, perhajps^ buys direct 
from the s elf-producer, leaying_himjioinina lly independent a nd 
hi s mo de_of production unchanged. In the third place, the in- 
dustrial becomes' a merchant and produces immediately on a 
large scale for commerce. 

In the Middle Ages, the merchant is merely the man who, 
as Poppe correctly says, " removes " the goods produced by the 
guilds or the peasants. The merchant becomes an industrial 
capitalist, or rather, he lets the craftsmen, particularly the 
small rural producers, work for him. On the other hand, 
the producer becomes a merchant. The mastiiiusEeayer, instead 
of receiving his wool in installments from the merchant ~HTrdr" 
working for-Wm witTi hia.40urnej[nien buys wool or yarn him- 
self and sejjsjiis cloth to the merchant. The elements of pro- 
duction pass into~Tlis process of production as commodities 
bought by himself. And instead of producing for the indi- 
vidual merchant, or for definite customers, the master cloth; 
weaver produces for the commercial world. The producpar^s 
himself a merchant. The merchants' capital performs no 
longer anything but the process of circulation. Originally 
the commerce was the premise for the transformation of the 
crafts, rural domestic industries, and feudal agriculture into 
capitalist enterprises. It develops the products into commod- 
ities, either by creating a market for them, or by carrying new 
equivalents in the form of goods to them and supplying pro- 
duction with new raw and auxiliary materials. In this way 



396 Capitalist Production. 

it opens up new lines of production, which are based at the 
outset upon commerce, both as concerns the production for 
the home and world market and as concerns conditions of pro- 
duction originated by the world market. As soon as manufac- 
ture gains sufficient strength, and^till more large scale indus- 
trj7Tt~creates in its turn a market_for itself and captures it 
with its commodities. ISTow commerce becomes the servant of 
ind.ustrial production, and a continual expansion of the mar- 
ket_becomes a vital necessitj~fof^ industrial production. An 
ever more extended wholesale production floods the existing 
market and thereby works continually toward a still wider 
expansion of the market and a bursting of its bonds. What 
restricts this wholesale production, is not commerce (to the 
extent that it expresses the existing demand), but the magni- 
tude of the employed capital and the developed productivity of 
labor. The industrial capitalist always has the world market 
before him, compares, and must continually compare, his 
own cost-prices with those of the whole world, not only with 
those of his home market. In former periods this comparison 
falls almost entirely upon the shoulders of the merchants, and 
thereby secures for merchants' capital the supremacy over in- 
dustrial capital. 

The first theoretical treatment of modem modes of produc- 
tion — the mercantile system — started out necessarily from 
the superficial phenomena of the process of circulation, which 
are presented in an independent form by the movements of 
merchants' capital. Therefore it grasped only the semblance 
of things. This^jwas partly due to the fact that merchants' 
ca pital i s the first free mode of existence of capital in general. 
Qn_the^her hand, itjwas due to the overwhelming influence 
exerted by this capital during the first period of revolution of 
fejidaLpLroduction, the period of genesis of modern production. 
The real science of modern economy does not begin, until the- 
oretical analysis passes from the process of circulation to the 
process of production. It is true, interest-bearing capital is 
likewise a very old form of capital. But we shall see later, 
why jnerc antilism did not take its departure from it, but as- 
sumed a controversial attitude towards it. 



PART V. 

DIVISION OF PEOFIT INTO INTEEEST AND 

PEOFITS OE ENTEEPEISE. 

THE INTEEEST-BEAEING' CAPITAL. 



CHAPTEE XXI. 

THE INTEREST-BEARING CAPITAL. 

In our first discussion of the general, or average, rate of profit 
in Part II of this volume, we did not have this rate before us 
in its complete form, since the equalisation of profit appeared 
there only as an equalisation between the various industrial 
capitals invested in different spheres. This was further sup- 
plemented in the preceding Part, in which the participation 
of merchants' capital in this equalisation and the commercial 
profit were discussed. By this means the general rate of profit 
and the average profit presented themselves within more cir- 
cumscribed limits than before. In the further process of our 
analysis it should be remembered, that any future refer- 
ence to the general rate of profit or to the average profit 
means only this latter, completed, form of the average rate. 
Since this rate is now the same for the industrial and the 
mercantile capital, it is no longer necessary, so far as this 
average profit is concerned, to make any distinction between 
industrial and commercial profit. Wliether capital is invested 
industrially in the sphere of production, or commercially in 
the sphere of circulation, it yields the same average profit an- 
nually in proportion to its magnitude. 

Money — which signifies here any independent expression 
of a certain amount of value, whether it exists actually as 

397 



398 Capitalist Production. 

money or as commodities — may be converted into capital on 
the basis of capitalist production. By this conversion it is 
transformed from a given value to a self-expanding, increas- 
ing, value. It produces a profit, that is, it enables a capital- 
ist to extract a certain amount of unpaid labor, surplus-prod- 
ucts ani^ surplus-value, from the laborers and to appropriate 
it to himself. In this way it acquires, aside from its use- 
value as money, an additionel use-value, namely that of serv- 
ing as capital. Its use-value consists then precisely in the 
profit, which it produces when converted into capital. In 
this capacity of potential capital, of a means for the produc- 
tion of profit, it becomes a commodity, but a commodity of a 
peculiar kind. Or, what amounts to the same, capital a§ cap- 
ital becomes a commodity.^^ 

Take it that the average rate of profit is 20%. In that 
case a machine, valued at 100 p.st., employed as capital under 
the prevailing average conditions and with an average exertion 
of intelligence and adequate activity, would yield a profit of 20 
p.st. In other words, a man having 100 p.st. at his disposal, 
holds in his hand a power by which 100 p.st. may be turned 
into 120 p.st., or by which a profit of 20% may be produced. 
He holds in his hand a potential capital of 100 p.st. If 
this man relinquishes these 100 p.st. for one year to another 
man, who uses this sum actually as capital, he gives him 
the power to produce a profit of 20%, a surplus-value, which 
costs this other nothing, for which he pays no equivalent. 
If this man should pay, say 5 p.st. at the close of the year 
to the owner of the 100 p.st., out of the produced profit, he 
would be paying for the use-value of the 100 p.st., the use- 
value of its function as capital, the function of producing 
20 p.st. of profit. That part of the profit, which he pays to 
the owner, is called interest. It is merely another name, a 
special term, for a certain part of the profit, which capital 
in process of its function has to give up to its owner, instead 
of keeping it in its owti pockets. 

*° At this place, some passages should be quoted, in which the economists con- 
ceive the matter in this way. " You (the Bank of England) are very large 
dealers in the commoditv capital? " is a Question presented to a director of this 
bank on the witness stana. Cbee Report on Sank Acvs, H. of C, 1857.) 



Interest-Bearing Capital. 399 

It is evident, that the possession of 100 p.st. gives to their 
owner the power to absorb the interest, a certain portion of 
the profit produced by his capital. If he did not give the 
100 p.st. to the other man, then this other could not produce 
any profit, and could not act in the capacity of capitalist at all 
with reference to these 100 p.st.^^ 

To speak in such a case of natural justice, as Gilbart is 
doing (see note), is nonsense. The justice of the transactions 
between the agents of production rests on the fact that these 
transactions arise as natural consequences from the conditions 
of production. The juristic forms, in which these economic 
transactions appear as activities of the will of the parties con- 
cerned, as expressions of their common will and as contracts 
which may be enforced by law against some individual party, 
cannot determine their content, since they are only forms. 
They merely express this content. This content is just, when- 
ever it corresponds, and is adequate, to the mode of produc- 
tion. It is unjust, whenever it contradicts that mode. 
Slavery on the basis of capitalist production is unjust; like- 
wise fraud in the quality of commodities. 

The 100 p.st. produce the profit of 20 p.st. by functioning 
as capital, whether it be industrial or commercial. But the 
indispensable condition of this function as capital is that this 
money is used as capital, that this money is invested in the 
purchase of means of production (in the case of industrial 
capital), or of commodities (in the case of merchants' cap- 
ital). But in order to be expended, it must be there. If A, 
the owner of the 100 p.st., were to spend them for his private 
expenses, or to keep them as a hoard, they could not be 
invested by B, in his capacity as a capitalist, as capital. 
B does riot invest his own capital, but that of A. But he 
cannot expend the capital of A without the consent of A, 
Therefore it is really A, who first expends these 100 p.st. 
as capital, although his whole function as a capitalist is 
limited to this expenditure of 100 p.st. as capital. So far 

^^ " That a man, who borrows money with the intention of making a profit on 
it, should give a portion of the profit to the lender, is a self-understood principle 
of natural justice." (Gilbart, The History and Principles of Banking, London, 1834, 
p. 103.) 



400 Capitalist Production. 

as these 100 p.st. are concerned, B acts in the capacity of 
a capitalist only because A lends him this money and thus 
expends it as capital. 

Let us first consider the peculiar circulation of interest- 
bearing capital. Then we shall analyse in the second place 
the peculiar manner, in which it is sold as a cotnmodity, 
being merely lent instead of relinquished for good. 

The point of departure is the money, which A advances 
to B. This may be done with or without security. How- 
ever, the first named form is the more ancient, with the 
exception of advances on commodities or on certificates of 
indebtedness, such as bills of exchange, bonds, etc. These 
special forms do not concern us here. We are dealing here 
wdth interest-bearing capital in its ordinary form. 

In the hand of B, the money is actually converted into 
capital, passes through the process M — C — M', and returns 
as M' to A, as M + increment of M, where the increment of 
M represents the interest. For the sake of simplicity we 
leave out of consideration the case, in which capital stays in 
the hands of B for a long term and interest is paid at period- 
ical intervals. 

The movement, then, is M — M — C — M' — M'. What 
appears duplicated here is 1) the expenditure of the money 
as capital, 2) its reflux as realised capital, as M', or as M -f- 
increment of M. 

In the movement of merchants' capital, M — C — M', the 
same commodity changes hands twice, or even more than 
twice, if one merchant sells to another. But every change 
of hand of these commodities indicates a metamorphosis, a 
purchase or sale of commodities, no matter how often this 
process may be repeated until it ends in consumption. 

On the other hand, the same money changes hands twice 
in C — M — C, but this indicates the complete metamor- 
phosis of the commodity, which is first converted into money 
and then from money back into another^ commodity. 

But in the case of interest-bearing capital, the first change 
of hands of M is not a phase of either the metamorphosis 
of a commodity or of the reproduction of capital. It does 



i 



Interest-Bearing Capital. 401 

not become so until the second change of hands, in the hands 
of the man acting in the capacity of a capitalist, who carries 
on a trade with it or transforms it into productive capital, 
^he first change of hands of M does not express anything 
else in this case but its transfer, or handing over by contract, 
from A to B. This is a transfer, which usually takes place 
under certain juristic forms and stipulations. 

This duplicated expenditure of money as capital, the first 
of which is merely a transfer from A to B, is supplemented 
by the duplication of its reflux. As M', or M + increment 
of M, it flows back out of the process to the man acting in 
the capacity of a capitalist. This man in his turn transfers 
it back to A, together with a part of the profit, of realised 
capital, of M + increment of M, which, however, is not 
equal to the entire profit, but only a part of the profit, the 
interest. It flows back to B only as the thing which he had 
invested, as capital in process of function, but as the property 
of A. In order that its reflux may be complete, B must re- 
turn it to A. But B has not only to return the amount of 
the capital, he must also turn over to A a part of the profit, 
which he made with this capital, and this part is called in- 
terest. For A gave him this money only as a capital, that 
is, as a value, which is not only maintained by its move- 
ments, but brings also a surplus-value to its owner. It re- 
mains in the hands of B only so long as it is performing its 
function of capital. And it ceases to be capital as soon as 
it is returned to its owaier on the stipulated date. When no 
longer serving as capital, it must be returned to A, who 
never ceased being its legal owner. 

The form of lending, which is peculiar to this commodity, 
this capital as a commodity, and which also occurs in other 
transactions instead of that of sale, follows from the simple 
definition that capital serves here as a commodity, or that 
money as capital becomes a commodity. 

It is necessary to make a distinction here. 

We have seen in Volume II, chapter I, and recall at this 
point, that capital senses in the process of circulation as 
commodity-capital and money-capital. But in neither ol 



402 Capitalist Production. 

tliese forms does capital become a commodity as capital. 

As soon as the productive capital has transformed itself 
into commodity-cajDital, it must be thrown upon the market, 
it must be sold as a commodity. There it serves simply in 
the capacity of a commodity. The capitalist then appears 
only as a seller of commodities, just as the buyer is only 
a buyer of commodities. As a commodity, the j)roduct must 
realise its value in the process of circulation, by its sale, 
must assume the form of money. In this respect it is quite 
immaterial, whether this commodity is bought by a consumer 
for the purpose of subsistence, or by a capitalist as a means 
of j)roduction to become a part of his capital. In the act of 
circulation, the commodity-capital serves only as a com- 
modity, not as capital. It is a commodity-ca^^'i^aZ^ as dis- 
tinguished from a simple commodity, 1), because it is preg- 
nant with surj^lus-value, so that the realisation of its value 
is simultaneously a realisation of surj)lus-value. But this 
does not alter in any way its simple existence as a com- 
modity, as a product of a certain j^rice. 2) It is a com- 
modit j'Capital^ because its function as a commodity is a phase 
in its process of reproduction as capital, so that its move- 
ment as a commodity, being a part of its movement in proc- 
ess, is simultaneously its movement as capital. Yet it does 
not become capital by the act of selling as such, but only 
through the connection of this act with the whole movement 
of this definite amount of value in the capacity of capital. 

In like manner it serves only as money pure and simple, 
when acting in the capacity of money-capital, that is, as a 
means of buying commodities (the elements of production). 
The fact that this money is at the same time money-capital, 
a form of capital, is not due to the act of buying, which is 
the service performed by it as money. It is due to the con- 
nection of this act with the total movement of capital, since 
this act, which it performs as money, inaugurates the capital- 
ist process of production. 

But so far as they perform any service and play any actual 
role in the process, commodity-capital on the market serves 
only as a commodity, money-capital only as money. At no 



Interest-Bearing Capital. 403 

time during the metamorphosis, viewed hy itself, does the 
capitalist sell his commodities as capital to the buyer, al- 
though they represent a capital for himself, nor does he give 
up money to the sellers in his capacity as a capitalist. In 
either case he exchanges his commodities simply as com- 
modities, and the money simply as money, as a means of 
purchasing commodities. 

It is only in the connection with the whole process, at the 
moment where the point of departure appears simultaneously 
as the point of return, in M — M' or C — C, that capital in 
the process of circulation appears as capital (while it appears 
as capital in the process of production through the subordina- 
tion of the laborer under the capitalist and the production 
of surplus-value). In this moment of return, however, the 
connection disajDpears. What is present is M', that is money 
plus increment of money (regardless of whether the amount 
of value increased by this increment has the form of money, 
commodities, or elements of production), a certain amount 
of money equal to the amount originally advanced plus an 
increment, which is the realised surplus-value. And it is 
precisely at this point of return, where capital exists as a 
realised capital, as an expanded value, that capital never 
passes into circulation — considering this point as a fixed 
point of rest, whether imaginary or real — , but rather ap- 
pears to be withdra^Ti from circulation as a result of the 
whole process. Whenever it is again relinquished, it is 
never transferred to another as capital, but sold to him as 
a simple commodity, or given to him as simple money in 
exchange for commodities. It never appears as capital in 
its process of circulation, but only as a commodity or as 
money, and this is the only form in which it exists so far 
as others are concerned. Commodities and money are here 
capital, not inasmuch as commodities change into money, or 
money into commodities, not with reference to their actual 
relations to sellers or buyers, but only with reference to their 
ideal relations, that is, subjectively speaking, their relations 
to the capitalist himself, or objectively speaking, as elements 
of the process of reproduction. So far as capital is capital, 



404 Capitalist Production. 

it exists only in its actual function, not in the process of 
circulation, but only in the process of production, in the 
process by which labor-power is exploited. 

But it is different with interest-bearing capital, and it is 
precisely this difference, which constitutes its specific char- 
acter. The owner of money, who desires to invest his money 
as interest-bearing capital, transfers it to some one else, 
throws it into circulation, makes a commodity of it as capital. 
It is not a capital for himself alone, but also for others. It 
is not capital merely for the man who offers it for invest- 
ment, but it is handed to others at the outset as capital, as 
a value endowed with the use-value of creating surplus-value, 
profit; a value which preserves itself in process and returns 
to its original owner, in this case the owner of money, after 
performing its function. It moves away from him only for 
a certain time, it passes for a while from the possession of 
its owner into that of a capitalist performing his business, 
it is neither given up in payment nor sold, but merely loaned. 
It is relinquished only with the understanding that it shall 
in the first place return to its point of departure after a cer- 
tain time, and that it shall return, in the second place, as 
realised capital, a capital having actually performed its fmic- 
tion of creating surplus-value. 

Commodities, which are loaned out as capital, are loaned 
either as fixed or as circulating capital, according to their 
constitution. Money may be loaned in either form. For in- 
stance, it may be loaned as fixed capital in the form of an 
annuity, whereby a portion of the capital returns with the 
interest. Some commodities, owing to the nature of their 
use-values, can be loaned only as fixed capital, such as houses, 
ships, machines, etc. But all loan capital, whatever be its 
forms, and no matter in what manner the nature of its use- 
value may modify its return, is only a specific form of 
money-capital. For the thing that is loaned here is always 
a definite sum of money, and it is this sum on which interest 
is calculated. If the thing that is loaned is neither money 
nor circulating capital, it is paid back in the same way in 
which fixed capital returns. The lender receives periodically 



Interest-Bearing Capital. 405 

a certain interest and a portion of the consumed value of 
the fixed capital itself, an equivalent for the periodical wear 
and tear. And at the end of the stipulated term the uncon- 
sumed portion of the loaned fixed capital is retunied in 
natura. If the loaned capital is circulating capital, it is like- 
wise returned in the manner peculiar to circulating capital. 

The manner of reflux, then, is always determined bj the 
actual circulation of the capital in process of reproduction 
and its specific kind. But so far as loan capital is concerned, 
its reflux assumes the form of return payments, because its 
advance, by which it is relinquished, has the form of loaning. 

In this chapter we treat only of money-capital proper, from 
which the other forms of loaned capital are derived. 

The loaned capital returns in a twofold way. First it re- 
turns in the process of reproduction to the capitalist per- 
forming his function, and then its return is duplicated by 
its transfer to the lender, the money-capitalist, in the form 
of a return payment to its real owner, its legal point of de- 
parture. 

In the actual process of circulation the capital appears 
always as a commodity or as money, and its movements are 
always dissolved into a series of purchases and sales. In 
short, the process of circulation resolves itself into the meta- 
morphosis of commodities. It is different, when we consider 
the process of reproduction as a whole. If we take our de- 
parture from money (and it is the same, when we start off 
with commodities, since we then take our departure from 
their value and look upon them from the point of view of 
money), we see that a certain sum of money is expended and 
returns after a certain period with an increment. This sum 
has preserved itself and expanded itself in the course of a 
certain rotation. To the extent that money is loaned as capi- 
tal, it is loaned as just such a sum of money, which preserves 
and expands itself, returns after a certain period with an in- 
crement, and is ready to pass through the same process once 
more. It is not expended either as money or as a commodity, 
it is neither exchanged for commodities when advanced in 
the form of money, nor sold in exchange for money, when 



4o6 Capitalist Production. 

advanced in the form of commodities. It is expended as 
capital. This reflexive relation to itself, in which capital 
presents itself when the process of production is viewed in 
its entirety and as a unit, and in which money appears as 
self-increasing money, is here imposed upon it as its char- 
acter and peculiarity without the intervention of any inter- 
mediary movement. And it is expended in this peculiar fonn, 
when it is loaned as money-capital. 

A very queer conception of the role of money-capital is held 
by Proudhon '' Gratuite du Credit. Discussion enter M. F. 
Bastiate et M. Proudhon. Paris, 1850.") Loaning appears 
as an evil to Proudhon because it is not selling. Loaning at 
interest is for him " the faculty of always selling the same 
article over and over, and of receiving its price again and 
again, without ever relinquishing the ownership of the tilings 
one is selling " (page 9). The object, such as money, a house, 
etc., does not change owners, as it does in selling and buying. 
But Proudhon does not see, that no equivalent is received for 
money handed over as interest-bearing capital. It is true 
that objects are passed from one to another in every act of 
buying and selling, so far as they are at all processes of ex- 
change. The ownership of the sold object is always relin- 
quished. But its value is not given up. In selling the com- 
modity is relinquished, but not its value, which is given in 
return in the form of money, or in another form which here 
takes the place of money, namely of certificates of indebted- 
ness, or of titles of payment. In buying money is given away, 
but its value, which is recovered in the shape of commodities. 
The industrial capitalist holds the same value in his hands 
during the entire process of reproduction (except the surplus- 
value), only it assumes different forms. 

To the extent that exchange takes place, that is, an ex- 
change of objects, no change of value takes place. The same 
capitalist always holds the same value in his hands. But so 
long as surplus-value is produced by the capitalist, no ex- 
change takes place. As soon as exchange takes place, the 
surplus-value is already incorporated in the commodities. If 
we do not have in mind the individual acts of exchange, but 



Interest-Bearing Capital. 407 

the total circulation of capital, M — C — -M', we see that a 
definite amount of values is continually advanced, and that 
this amount plus the surplus-value, or the profit, is recovered 
from the circulation. It is true, the individual acts of ex- 
change do not reveal the fact that they are promoting this 
process. And it is precisely this process of M as capital, on 
which the interest of the money-lending capitalist rests and 
from which it arises. 

" In fact," says Proudhon, '^ the hat maker, who sells hats 
receives their value, no more and no less. But the 
money-lending cajDitalist . . . does not recover merely 
his capital : he recovers more than his capital, more than he 
throws into circulation ; he receives an interest over and above 
his capital." (Page 169.) The hatter stands here in the 
jjlace of the productive capitalist as distinguished from a 
loan capitalist. Evidently Proudhon did not learn the secret, 
which enables the capitalist to sell commodities at their value 
(the equalisation of values by the prices of production is here 
immaterial for his conception), whereby he receives a profit 
in addition to the capital, which he throws into circulation. 
Let us assume that the price of production of 100 hats is 115 
pounds sterling, and that this price of production happens 
to be identical with the value of the hats, which means that 
the capital invested in the production of hats is of the same 
composition as the average social capital. If the profit is 15 
p.st., or 15%, then the hatter gets this profit of 15 p.st. by 
selling his hats at their value of 115. They cost him 100 p.st. 
If he has produced them with his own capital, he pockets the 
whole surplus of 15 p.st. If he has borrowed the capital, he 
may have to give up 5 p.st. for interest. This does not alter 
anything in the value of the hats, but only in the distribution 
of the surj^lus-value already contained in this value between 
different persons. Since the value of the hats is not affected 
by the payment of interest, it is nonsense on the part of 
Proudhon to say : " As in commerce the interest of capital 
is added to the wages of laborers in making up the price of 
commodities, it is impossible that the laborer should be able 
to buy back the product of his own labor. To live by work- 



4o8 Capitalist Production. 

ing is a principle, which implies a contradiction under the 
rule of interest." ^^ 

How little Proudhon understood the nature of capital, is 
shown by the following statement, in w^hicli he describes the 
movement of capital in general as a movement peculiar to 
interest-bearing capital : " Since money-capital, from ex- 
change to exchange, comes always back to its source by the i 
accumulation of interest, it follows that re-investment is al- 
ways made by the same hand and profit accrues always to the 
same person." 

What is it, now, that remains a riddle to him in the peculiar 
movement of interest-bearing capital ? The categories buy- 
ing, price, giving up objects, and the spontaneous form, in 
which surplus-value appears here ; in short, the phenomenon 
that capital as such has become a commodity, so that selling 
has been turned into lending and price into a share in the 
profit. 

The return of capital to its point of departure is the most 
general and characteristic movement of capital in its total 
circulation. This is by no means a peculiarity of interest- 
bearing capital. Its peculiarity is rather the externalised form 
of its return without the intervention of any circulation. 
The loaning caj)italist lets go of his capital, transfers it to 
some industrial capitalist, without receiving any equivalent. 
His handing over of capital is not an act of the real circula- 
tion of capital at all, but serves merely as a prelude for the 
industrial capitalist who effects this circulation. This first 
change of place of money does not express any act of metamor- 
phosis, neither buying nor selling. Its o^vnership is not re- 
linquished, because no exchange takes place, no equivalent is 
offered. The return of the money from the hand of the in- 
dustrial capitalist to that of the loaning capitalist supplements 

" " A house," " money," etc., are not to be loaned as " capital," if Proudhon 
can have his way, but to be sold as " commodities ... at cost-price " (page 
44). Luther stood somewhat higher than Proudhon. He knew at least that the 
making of profits does not depend on the manner of lending or buying: " They 
turn buying also into usury. But this is really too much for one bite. We must first 
confine ourselves to one thing, usury in lending, and after we shall have stopped that 
(after judgment day), we will not fail to preach against usury in buying." (Martin 
Luther. An die Pfarherrn wider den Wucher su predigen. Wittenberg, 1525.) 



Interest-Bearing Capital. 409 

merely the first act of handing over the capital. This capital, 
after having been advanced in the form of money, returns 
to the industrial capitalist from the process of circulation in 
the form of money. But as the capital did not belong to him 
when he expended it, neither can it belong to him on its re- 
turn. The passage through the process of reproduction can- 
not by any means give him the ownership of this capital. 
Hence he must restore it to its lender. The first transfer 
of the capital from the hands of the lender to those of the 
borrower is a legal transaction, which has nothing to do with 
the actual process of reproduction, but merely inaugurates 
it. The restoration, which transfers the returned capital from 
the hands of the borrower back to those of the lender is an- 
other legal transaction, a supplement of the first. The first 
inaugurates the actual process, the second takes place after 
this process. The point of departure and of return, the dis- 
pensation and recovery of the loaned capital, thus appear as 
arbitrary movements promoted by legal transactions, which 
take place before and after the actual process of capital and 
have nothing to do with it. So far as this actual process is 
concerned, the industrial capitalist might as well own the cap- 
ital at the outset, so that it would return to him as his prop- 
erty. 

In the first introductory act the lender gives his capital 
to the borrower. In the second and closing act after the proc- 
ess, the. borrower returns the capital to the lender. To the 
extent that we consider merely the transaction between these 
two — and leaving aside the question of interest for the pres- 
ent — , in other words to the extent that we have in mind 
only the movement of the loan capital itself between the 
lender and the borrower, the whole movement is comprised 
within these two acts (separated by a longer or shorter time, 
during which the process of actual reproduction of capital 
takes place). And this movement, this dispensing on condi- 
tion of returning, constitutes per se the movement of lending 
and borrowing, which is a specific form of a conditional dis- 
pensation of money or commodities. 

The characteristic movement of capital in general, namely 



4IO Capitalist Production. 

the return of money to the capitalist, the return of capital to 
its point of departure, assumes in the case of interest-bearing 
capital a wholly externalised form, separated from the actual 
movement of which it is an expression. A lets go of his 
money, not in the sense of money, but of capital. This im- 
plies no transformation of the capital. It merely changes 
hands. Its real transformation into capital is not performed 
until it is in the hands of B. But it has become capital for 
A as soon as he has given it to B. The actual reflux of capital 
from the processes of production and circulation takes place 
only for B. But for A the reflux assumes the same fonn as 
the dispensation. The capital returns from the hands of B to 
those of A. Dispensing, loaning money for a certain time and 
recovering it with interest (surplus-value) make up the com- 
plete form of the movement, which is peculiar to interest- 
bearing capital as such. The actual movement of the loaned 
money as capital constitutes a process, which is outside of 
the transactions between the lender and the borrower. In 
these transactions the intermediate process is obliterated, in- 
visible, not directly comprised. 

Being a peculiar sort of commodity, capital has its own 
peculiar mode of alienation. Its return in the present case 
is not the expression, not the consequence or result, of a definite 
series of economic processes, but the outcome of a specific 
legal agreement between buyer and seller. The time of 
return depends on the duration of the process of reproduction. 
But in the case of interest-bearing capital, its return as capital 
seems to depend on the mere agreement between lender and 
borrower. The return of capital as a part of this agreement 
no longer appears as a result due to the process of reproduc- 
tion, but seems to take place without depriving the loaned 
capital of the form of money. It is true that these trans- 
actions are actually determined by the reproductive returns. 
But this is not evident in the transactions themselves. Nor 
is it always the case in practice. If the return in reproduc- 
tion does not take place at the proper time, then the bor- 
rower has to face the problem, wdiat other resources he can 



Interest-Bearing Capital 411 

call into j)lay to fulfill his obligations towards the lender. 
The mere form of this capital — that is, money expended 
as a certain sum, A, and returning as another sum A + — , 
after a certain lapse of time, without any other intermediate 
connection but this lapse of time — is but an abstract image 
of the actual movement of capital. 

In the actual movement of capital, its return is a phase 
of the process of circulation. The money is first converted 
into means of production; the process of production trans- 
forms it into commodities ; by the sale of the commodities it 
is reconverted into money, and in this form it returns to the 
hands of the capitalist, who originally advanced the capital 
in the form of money. But in the case of interest-bearing 
capital, both the alienation and the return are the results of 
a legal transaction between the owner of capital and another 
person. We see only the alienation and the return. What- 
ever passes during the interval is obliterated. 

But since money, when advanced as capital, has the faculty 
of returning to the person, who expended, it as capital, since 
M — • C — M' is the immanent form of the movement of 
capital; for this very reason the owner of money can loan it 
as capital, a thing having the faculty of returning to its point 
of departure, of preserving its value while under way in proc- 
ess, and of increasing it. He loans it as capital, because it 
returns to its point of departure after having been trans- 
formed into capital, so that the borrower can restore it to the 
lender after a certain period, because he has recovered it 
himself. 

The loaning of money as capital — its alienation on con- 
dition that it be returned after a certain time — is therefore 
conditioned on the requirement that this money be actually 
employed as capital, so that it may actually flow back to its 
starting point. The actual cycle of money as capital is there- 
fore the basic condition of the legal transaction, by which the 
borrower has to return the money to the lender. If the bor- 
rower does not invest the money as capital, it is his own 
business. The lender loans it as capital, and as such it is 



412 Capitalist Production! 

supposed to perform the capitalist functions, which include 
the circulation of money-capital until it reaches once more 
its starting point in the form of money. 

The transactions M — C and C — M' in the circulation, 
in which a certain amount of value serves as money or com- 
modities, are but intermediary processes, individual phases 
of a whole movement. As capital, this sum passes through 
the whole movement M — M'. It is advanced as money, or 
as a sum of values in some form, and returns as a sum of 
values. The lender of money does not expend it in the pur- 
chase of commodities, or, if this sum of values exists in the 
form of commodities, he does not sell it for money, but he 
advances it as capital, as M — M', as a value, which returns 
after a certain lapse of time to its point of departure. In- 
stead of buying and selling, he loans. This loaning, then, is 
the form corresponding to its alienation as capital, instead 
of its alienation as money or commodities. This does not 
mean, however, that loaning may not be used in transactions, 
which have nothing to do with the capitalist process of re- 
production. 



\ 



We have so far considered only the movements of loaned 
capital between its owner and the industrial capitalist. Now 
we shall have to inquire into interest. 

The lender expends his money as capital; the amount of 
values, which he relinquishes into the hands of another, is 
capital and returns to him. But the mere return of the loan 
capital into his hands as the same amount would not be its 
reflux as capital, but merely the return of a loaned sum of 
values. In order to return as capital, the advanced sum of 
values must not only be preserved in process, but must also 
be expanded, must return with a surplus-value, must be re- 
covered as M 4~ increment of M. This increment of M is 
in the present case the interest. It is that portion of the 
average profit, Avhich does not remain in the hands of the 
practicing capitalist, but falls to the share of the money capital- 
ist. 



Interest-Bearing Capital. 413 

The fact that the money capitalist expends it as capital 
implies that it must be restored to him as M -|- increment 
of M. Later Ave shall also have to consider the case, in which 
interest is paid in fixed intervals without the simultaneous 
return of the capital, whose definite return does not take 
i^lace until at the end of ,a longer period. 

What is it that the money capitalist gives to the borrower, 
the industrial capitalist ? What does he really pass over to 
him ? It is only this transaction of handing over money 
which makes of the loaning of money a lending of money as 
capital, that is, the lending of capital as a commodity. 

It is only by this act of passing money over to another that 
the capital is loaned by tlie money lender as a commodity, or 
that the commodity at his disposal is given to another as 
cai^itel, 

Wh?ii; is it that is alienated in ordinaiy sale ? It is not the 
value of the sold commodities, for this changes merely its 
form. The value exists ideally in a commodity as its price, 
before it passes" actually into the hands of the seller as money. 
The same value and the same amount of value merely change 
their form iu such a case. In one instance they exist in the 
form of a commodity, in another in the form of money. The 
thing which is actually alienated by the seller, and which for 
this leason passes into the individual or productive consump- 
tion of the buyer, is the use-value of the commodity, is the 
commodity as a use-value. 

What, then, is the use-value, which the money capitalist 
passes over for the period of the loan and relinquishes into 
the hands of the borrower, the productive capitalist ? It is 
the use-value, which the money assumes by being capable of 
being invested as capital and performing the functions of 
capital, so that it can create a definite surplus-value, the aver- 
age profit (any excess or fall below this is here a matter of 
accident), during its process, in addition to preserving its 
original magnitude of value. In the case of other commodities 
the use-value is ultimately consumed. Their substance dis- 
appears in consequence and with it their value. But the com- 



414 Capitalist Production, 

modity capital has the peculiarity, that the consumption of 
its use-value not only preserves its exchange value and its 
use-value, but also increases them. 

It is this use-value of money as capital, this faculty of pro- 
ducing an average profit, which the money capitalist relin- 
quishes to the industrial capitalist for the jjeriod, during 
which he yields to the latter the use of the loan capital. 

The money thus loaned shows in this respect a certain 
analogy with labor-power in its relation to the industrial 
capitalist. There is only this difference, that he pays for the 
value of labor-power, while he simply pays back the value 
of the loaned capital. The use-value of labor-power consists 
for the industrial capitalist in the faculty that labor-power 
creates more value (the profit) by its consumption for the 
industrial capitalist. And in like manner the use-value of 
the loan capital appears as its faculty of preserving and in- 
creasing value. 

The money-capitalist alienates indeed a use-value, and for 
this reason the thing which he gives away is given as a com- 
modity. And to this extent the analogy with a commodity is 
complete. In the first place, it is a value, which passes from 
one hand to another. In the case of a simple commodity, 
a commodity as such, the same value remains in the hands of 
the buyer and seller, only it has different forms ; both have 
the same value Avhich they had before the transaction, the 
one in the form of a commodity, the other in that of money. 
The difference in the case of loan capital is that the monev 
capitalist is the only one who gives away a value when loan- 
ing money; but he preserves it by means of future restoration. 
In the transaction of loaning only one party receives value, 
since only one party relinquishes value. 

In the second place, it is a real use-value, which is relin- 
quished on one side and received and consumed on the other. 
But it differs from the use-value of ordinary commodities in 
that it is itself a value, namely the excess over the value of 
the original capital realised by the use of money as capital. 
The profit is this use-value. 

The use-value of the loan capital consists in being able 



\ 



Interest-Bearing Capital. 41^ 

to serve as capital and to produce in this capacity the aver- 
age profit under average conditions.^* 

What, then, does the industrial capitalist pay, and what 
is, therefore, the price of the loaned capital? That which 
men pay as interest for the use of what they borrow is, ac- 
cording to Massie, a part of the profit it is capable of pro- 
ducing.^^ 

What the buyer of an ordinary commodity buys is its use- 
value; what he pays for is its exchange value. What the 
borrower of money buys, is likewise its use-value as capital; 
but what does he pay for ? Surely not for its price, or value, 
as in the case of ordinary commodities. Xo change of form 
takes place in the value passing between the borrower and the 
lender, such as takes place between the buyer and the seller, 
so that this value would exist in one instance in the form of 
money, in another instance in the form of a commodity. The 
sameness of the alienated and returned value shows itself 
here in an entirely different way. The sum of values, the 
money, is given away without an equivalent, and is returned 
after the lapse of a certain period. The lender always re- 
mains the owner of the same value, even after it has passed 
from his hands into those of the borrower. In the simple 
exchange of commodities, the money is always on the side of 
the buyer ; but in the lending, the money is on the side of the 
lender. It is he, who gives away his money for a certain 
period, and it is the borrower, the buyer of capital, who re- 
ceives it as a commodity. But this is possible only when the 
money serves as capital and is advanced for this purpose. 
The borrower borrows mdney as capital, as a value producing 
an increment. But at the moment of borrowing it is as yet 
only potential capital, and so is any other capital at the mo- 
ment when it is advanced. Only by its use does it expand 

*»The equitableness of taking interest depends not upon a man's making or not 
making profit, but upon its being capable of producing profit, if rightly employed. 
</}» Essay on the Govcrmng Causes of the Natwal Rate of Interest, wherein the 
sentiments of Sir W. Petty and Mr. Locke, on that head, are considered. London. 
1750. P. 49.) The author of this anonymous work is J. Massie. 

'"Rich people, instead of employing their money themselves ... let it out 
to other people for them to make profit of,, reserving for the owners a proportion 
of the profits sp made. (L. c, p. 23.) 



41 6 Capitalist Production. 

its value and realise itself as capital. But after it has be- 
come realised capital, the borrower has to return it, as a 
value plus a surplus-value (interest). And this interest can 
be only a portion of the realised profit. Only a portion, not 
the whole of it. For its use-value for the borrower consists 
in producing a profit for him. Otherwise there would not 
have been any alienation of its use-value on the part of the 
lender. On the other hand, it cannot be the whole profit 
which falls to the share of the borrower. Otherwise he would 
not be paying anything for the alienation of the use-value, 
and he would return the advanced money to the lender as 
simple money, not as a capital having realised itself. For 
it is realised capital only when it is M -{- increment of M. 

Both of them expend the same sum of money as capital, 
the lender and the borrower. But only in the hands of the 
latter does it serve as capital. The profit is doubled by the 
double existence of the same sum of money as a capital for 
"two persons. It can serve as a capital for both of them only 
by^ dividing the profit. That portion, which falls to the share 
of the lender, is called interest. 

It is our assumption, that this entire transaction takes 
place between two kinds of capitalists, the money-capitalist 
and the industrial or the merchant capitalist. 

It should never be forgotten, that capital as such is here 
a commodity, or that the commodity, which is here in ques- 
tion, is capital. All the relations, which become manifest 
here, would be irrational from the point of view of a simple 
commodity, or even from the point of view of capital serving 
as a commodity-capital in its process of reproduction. Lend- 
ing and borrowing, instead of selling and buying, is here a 
distinction arising from the specific nature of the commodity, 
of capital; also that it is interest, not the price of the com- 
modity, which is paid here. If interest is to be called the 
price of money-capital, it will be an irrational form of price, 
which is quite at variance with the conception of the price 
of commodities.®^ The price is then reduced to its purely 

'""The expression 'value' applied to cutrency lias three meanings . . . 
secondly, currency actually in hand, compared with the same amount of currency. 



Interest-Bearing Capital. 417 

abstract and meaningless form, signifying a certain sum of 
money paid for some thing, -which, serves in some manner 
as a use-value. On the other hand, the concept of price really 
signifies the value of some use-value expressed in money. 

To call interest the price of capital is to use at the outset 
an irrational exj)ression. A commodity has here a double 
value, namely first a real value, and secondly a price differing 
from this value, while ordinarily price signifies the expression 
of the value in money. Money-capital is primarily but a sum 
of money, or the value of a certain quantity of commodities 
incorporated in a sum of money. If a commodity is loaned 
as capital, then it is only the disguised form of a sum of 
money. For that which is loaned as capital is not so and 
so many pounds of cotton, but so much money existing in the 
form of cotton as its value. The price of capital, therefore, 
refers to it as a sum of money, even if not a currency, as 
Mr. Torrens thinks (see above note 60). How, then, can a 
sum of values have a price beside its own price, that is, aside 
from the price expressed in their own money-fonn ? Price 
is precisely the value of commodities (and this holds good 
also of the market-price, whose difference from value is not 
one of quality, but only one of quantity, since it refers only 
to the magnitude of the value) as distinguished from their 
use-value. A price which is different in quality from value 
is an absurd contradiction.^^ 

Capital manifests itself as capital by its employment. The 
degree of its self-expansion expresses the quantitative ratio, 
in which it realises itself as capital. The surplus-value or 
profit produced by it — its rate or magnitude — is measur- 
able only by its comparison with the value of the advanced 
capital. The greater or lesser self-expansion of interest- 

which will come in at some later day. Then its value is measured by the rate 
of interest, and the rate of interest determined by the ratio between the amount 
of loanable capital and the demand for it." (Colonel R. Torrens: On the Oper- 
ation of the Bank Charter Act of 1844, etc., 2nd. ed., 1847.) 

" " The ambiguity of the term ' value of money ' or 'of the currency,' when 
employed indiscriminately as it is, to signify both value in exchange for com- 
modities and value in use of capital, is a constant source of confusion." (Tooke: 
Inquiry into the Currency Principle, p. 77.) The main o infusion (implied by the 
question itself) that value as such (interest) should be considered as the use- 
value of capital, has escaped Tooke. 

2A 



41 8 Capitalist Prochiction. 

bearing capital is, therefore, only measurable by a comparison 
of the amount of interest, its share in the total profits, Avith 
the value of the advanced capital. While the price expresses 
the value of commodities, the interest expresses the self- 
expansion of money-capital and thus appears as the price, 
which the lender receives for it. This shows how absurd it is 
at the start to apply indiscriminately to this question the sim- 
ple relations of exchange through buying and selling, as 
Proudhon does. For the basic premise is here that money 
serves as capital and may thus be transferred as capital itself, 
as potential capital, to another person. 

Capital itself appears here as a commodity, inasmuch as 
it is offered on the market as the use-value of money actually 
handed over as capital. Its use-value consists in producing 
profits. The value of money or of commodities employed in 
the capacity of capital is not determined by their value as 
money or commodities, but by the quantity of surplus-valuf, 
wdiich they produce for their owner. The product of capital 
is profit. On the basis of capitalist production it is merely 
a difference in the employment of money, whether it is ex- 
pended as money or advanced as capital. Money, or com- 
modities, are in themselves, potentially, capital, just as labor- 
power is potential capital. For in the first i^lace, money may 
be converted into elements of production and is to that extent 
only an abstract expression of them, personifying their ex- 
istence a3 values ; in the second place, the material elements 
of wealth have the capacity of being even potentially capital, 
because tho opposite supplement, which makes capital of them, 
namely wage-labor, is present on the basis of capitalist pro- 
duction. 

The opposing social peculiarities of material wealth, its 
antagonism to labor in the form of wage-labor, considered 
apart from the process of production, are expressed even in 
capitalist property as such. This particular fact, when sep- 
arated from the process of capitalist production itself, of 
which it is a constant result and, being its constant result, 
is its constant prerequisite, expresses itself in such a way that 
money and commodities alike become latent, potential, capital. 



Inicrcst-B caring Capital. 419 

so that they may be sold as capital, and that they represent 
in this form a command over the labor of others, a claim to 
the appropriation of the labor of others, so that they become 
self-expanding values. In this way it also becomes clearly 
apparent that this relation supplies the title and means for 
the appropriation of the labor of others, and that this is not 
due to any labor offered as an equivalent on the part of the 
capitalist. 

Capital appears furthermore as a commodity, inasmuch 
as the division of profit into interest and profit proper is reg- 
ulated by demand and supply, that is, by competition, just as 
are tlie market-prices of commodities. But in the present case 
the difference becomes quite as apparent as the analogy. If 
demand and supply balance, the market-price of commodities 
corresponds to their price of production. In other words, 
their price is then seen to be regulated by the internal laws 
of capitalist production, independently of competition, since 
the fluctuations of supply and demand do not explain any- 
thing but the deviations of market-prices from the prices of 
production. These deviations balance mutually, so that in 
the course of long periods the average market-prices corre- 
spond to the prices of production. As soon as these prices 
coincide, these forces cease to operate, they compensate one 
another, and the general law determining prices then applies 
also to individual cases. The market-price then corresponds 
even in its immediate form, and without the help of averages 
drawn from the movements of market-prices, to the price of 
production, which is regulated by the immanent laws of the 
mode of production itself. The same is then true of wages. 
If supply and demand balance, they neutralise each other's 
effects, and wages are then equal to the value of labor-power. 
But it is different with the interest on money-capital. Com- 
petition does not, in this case, determine the deviations from 
the rule, but there is rather no law of division except that 
enforced by competition, because no such thing as a " natural " 
rate of interest exists, as we shall see presently. By the nat- 
ural rate of interest people merely mean the rate fixed by 
free competition. There are no " natural " limits for the rate 



420 Capitalist Production. 

of inters?!. Whenever competition does not merely deter- 
mine the deviations and fluctuations, in other words, when- 
ever a neutralisation of the opnosing forces of competition 
puts a stop to all determination, the thing to be determined 
becomes a matter of arbitrary and lawless estimation. We 
shall dwell on this further in the next chapter. 

In the case of interest-bearing capital, everything is out- 
ward appearance: The advance of capital seems a mere 
transfer from the lender to the borrower; the reflux of real- 
ised capital a more transfer back to its o^vner, a return pay- 
ment with interest .■^rom the borrower to the lender. The 
same holds good of the fact, due to the capitalist mode of 
production, that the rate of profit is not merely determined 
by the relation of the profit made in one single turn-over 
to the advanced capital-A'alue, but also by the length of the 
time of turn-over itself, so that it is a question of a profit 
realised on the industrial capital in definite periods of time. 
This likewise appears in the case of interest-bearing capital 
in the outward fact, that a definite interest is paid to the 
lender for a definite period of fime. 

With his customary insight into the internal connection of 
things, th^ romantic Adam, Miil^ei" says C^' Elemente der 
Staatsku7ist" Berlin, 1809, p. 37) : "In determining the 
prices of things, time is not consider>ed ; while in the deter- 
mination of interest, it is principally time which is taken 
into account." He does not see that the lime of production 
and the time of circulation enter into the determination of 
the price of commodities, and that this is precisely what de- 
termines the rate of profit for a given time of tj^rn-over of 
capital, while the determination of profit for a certain time 
in its turn determines that of interest. His sagacity con- 
sists here, as it always does, in seeing the clouds of dust on 
the surface and having the presumption to declare ^In's dust 
to be something mysterious and important. 



Division of Profit. 421 



CHAPTER XXII. 

DIVISION OF PROFIT. KATE OF INTEREST. JMATUKAL RATE OF 

INTEREST. 

The object of this chapter, and in general all other phe- 
nomena of credit requiring our consideration later on, can- 
not here be analysed in detail. The competition between 
lenders and borrowers and the resulting minor fluctuations of 
the money-market fall outside of the scope of our inquiry. 
The circle described by the rate of interest during the indus- 
trial cycle requires for its presentation the analysis of this 
cycle itself, but this is likewise beyond our intentions for the 
present. The same is true of the greater or lesser approximate 
equalisation of the rate of interest in the world market. We 
merely intend here to analyse the independent form of interest- 
bearing capital and the individualisation of interest as differ- 
entiated from profit. 

Since interest is merely a part of profit, paid according 
to our assumption by the industrial capitalist to the money- 
capitalist, the maximum limit of interest is marked by profit 
itself, and in that case the portion pocketed by the productive 
capitalist would be equal to zero. Aside from exceptional 
cases, in which interest might be actually larger than profit 
and could not be paid out of profit, one might consider as the 
maximum limit of interest the entire profit minus that por- 
tion (to be subsequently analysed), which resolves itself into 
wages of superintendence. The minimum limit of interest is 
wholly undefinable. It may fall to any depth. But counter- 
acting circumstances will always appear and lift it again 
above this relative minimum. 

" The relation between the amount paid for the use of some 
capital and this capital itself expresses the rate of interest, 
measured in money." "The rate of interest depends, 1), on 
the rate of profit; 2), on the proportion in which the total 



422 Capitalist Production. 

profit is divided between the lender and the borrower." 
{Economist, January 22nd, 1853.) " Since that which is 
paid as interest for the use of that which is borrowed is a 
part of the profit, which the borrowed is able to produce, this 
interest must always be regulated by that profit." (Massie, 
I. c, p. 49.) 

Let us first assume, that a fixed relation exists between the 
lotal profit and that one of its parts, which has to be paid as 
interest to the money-capitalist. In this case it is evident, 
;hat the interest will rise or fall with the total profit, and 
this profit is determined by the general rate of profit and its 
fluctuations. For instance, if the average rate of profit were 
20% and the interest one-quarter of the profit, then the rate 
of interest would be 5% ; if the rate of profit were only 16%, 
the rate of interest w^ould be 4%. With a rate of profit of 
20%, the rate of interest might rise to 8%, and yet the in- 
dustrial capitalist would still make the same profit as he would 
with the rate of profit at 16% and the rate of interest at 4%, 
namely 12%. If the interest should rise only to 6 or 7%, 
he would keep a still larger share of the profit. If the inter- 
est amounted to a constant quota of the average profit, it would 
follow, that to the extent that the general rate of profit would 
rise, the absolute difference between the total profit and the 
interest would increase, and to the same extent would that 
portion of the total profit increase, which the productive capi- 
talist would pocket, and vice versa. Take it that the interest 
amounts to one-fifth of the average profit. One-fifth of 10 
is 2 ; difference between total profit and interest 8. One-fifth 
of 20 is 4; difference 20 — 4 = 16. One-fifth of 25 is 5; 
difference 25 — 5 = 20. One-fifth of 30 is 6 ; difference 
30 — 6 = 24. One-fifth of 35 is 7 ; difference 35 — 7 = 28. 
The different rates of interest of 4, 5, 6, 7% would in this 
case always represent one-fifth of the total profit. If the rates 
of profit are different, then different rates of interest may 
represent the same aliquot parts of the total profit, or the same 
percentage of the total profit. With such constant proportions 
of interest, the industrial profit (the difference between the 
total profit and the interest) would be so much greater, the 



II 



Rate of Interest. 423 

higher the average rate of profit would be, and vice versa. 

Assuming all other conditions to be equal, in other words, 
assuming the proportion between interest and total profit to 
be more or less constant, the productive capitalist will be able 
and willing to pay a higher or lower interest directly propor- 
tional to the level of the rate of profit.^ ^ Since we have 
seen, that the height of the rate of profit is inversely propor- 
tional to the development of capitalist production, it follows 
that the high or low rate of interest in a certain country is to 
the same extent inversely proportional to the degree of indus- 
trial development, at least so far as differences in tlie rate of 
interest actually expresses differences in the rates of profit. 
And this mode of regulating interest applies even to its aver- 
age. 

In any event the average rate of profit is the ultimate limit 
determining the maximum limit of interest. 

The fact that the rate of interest is related to the average 
profit will be considered more at length immediately. When- 
ever a certain whole, such as j)rofit, is to be divided between 
two parties, the first thing to be considered is the magnitude 
of the whole. The magnitude of the profit is determined by 
its average rate. Assuming the average rate of profit, and 
thus the magnitude of profit, for a capital of a certain size, 
to be given (for instance 100), it is evident that the vari- 
ations of interest will be inversely proportional to those of 
the profit remaining in the hands of the capitalist working 
with a borrowed capital. And the circumstances, which de- 
termine the amount of profit to be divided (the values pro- 
duced by unpaid labor), differ widely from those, which 
determine its distribution between these two kinds of capital- 
ists, and frequently produce effects in opposite directions.^ ^ 

If we observe the cycles of variation, in which modern in- 

*' " The natural rate of interest is governed by the profits of trade to particulars." 
(Massie, 1. c., p. 51.) 

«'At this place the manuscript contains the following statement: "The course 
of this chapter shows, that it is preferable, before analysing the laws of the 
distribution of profits, to ascertain first the way in which the division of quanti- 
ties becomes one of quality. In order to make a transition to this end from the 
preceding chapter, nothing is needed but the provisional assumption, that interest 
is a certain indefinite portion of the profit. 



424 Capitalist Production. 

dustry moves along — condition of rest, increasing activity, 
prosperity, overproduction, crisis, stagnation, condition of rest, 
etc., which fall outside of the scope of our analysis — we 
shall find, that a low rate of interest generally corresponds to 
periods of prosperity, or of extra profit, a rise of interest to 
the transition between prosperity and its reverse, and a maxi- 
mum of interest up to a point of extreme usury to the period 
of crises.^* With the summer of 1843 came a period of re- 
markable prosperity ; the rate of interest, which had still been 
4^% in the spring of 1842, fell to 2% in the spring and sum- 
mer of 1843; 6^ in September it fell even to U%. (Gil- 
bart, I, p. 166) ; whereupon it rose to 8% and more during 
the crisis of 1847. 

It may happen, however, that low interest is found in times 
of stagnation, and moderately rising interest in times of in- 
creasing activity. 

The rate of interest reaches its highest point during crises, 
when money must be borrowed in order to meet payments at 
any cost. Since a rise of interest implies a fall in the price 
of securities, this offers at the same time a fine opportunity to 
people with available money-capital, who may acquire posses- 
sion at cut-rate prices of such interest-bearing securities as 
must at least regain their average price in the regular course 
of things, as soon as the rate of interest falls again.*^''' 

However, there is also a tendency of the rate of interest to 
fall, quite independently of the fluctuations of the rate of 
profit. This is due to two main causes. 

I. " Let us assume that capital were never borrowed for 

^* " In the first period, immediately after a time of depression, money is plentiful 
without any speculation; in the second period money is plentiful and speculation 
flourishing; in the third period speculation begins to let up and money is in 
demand; in the fourth period money is scarce and the depression starts in." 
(Gilbi.rt, 1. c, p. 144.) 

"^ Tooke explains this by " the accumulation of surplus capital necessarily accom- 
panying the scarcity of profitable employment for it in previous years, by the release 
of hoiirds, and by the revival of confidence in commercial prospects." (History 
of Prkes from 1839 till 1847. London, 1848, p. 54.) 

^ " An old customer of a banker was refused a loan upon a 200,000 pounds 
sterlinj bond; when about to leave to make known his suspension of payment, he 
was tiild there was no necessity for the step, under the circumstances the banker 
would buy the bond at 150,000 pounds sterling." {The Theory of the Exchanges, 
The ijank Charttr Act of 1844, etc. London, 1869, p. 80.) 



Rate of Interest. 425 

any other but productive investments, it is nevertheless pos- 
sible, that the rate of interest may vary without any change 
in the rate of gross profits. For, as a people progresses in 
the development of wealth, there arises and grows more and 
more a class of people, who find themselves possessed of funds 
through the labors of their ancestors, and who can live on the 
mere interest on them. Many, having actively participated 
in business in their youth and prime, retire, in order to live 
quietly in their old age on the interest of the sums accumu- 
lated by them. These two classes have a tendency to in- 
crease with the growing wealth of the country ; for those who 
start out with a moderate capital acquire more easily an in- 
dependent fortune than those, who start out with little. In 
old and rich countries, therefore, that portion of the national 
capital, whose owners do not care to invest it themselves, 
makes up a larger proportion of the total productive capital 
of society than in newly settled and poor countries. How 
numerous is not the class of annuity-holders in England! In 
proportion as the class of annuity-holders increases, that of 
the capital loaners increases also, for they are both the same." 
(Eamsay, Essay on the Distribution of Wealth, p. 201) 

II. The development of tlie credit system, and with it the 
continually growing control of the industrials and merchants 
over the money savings of all classes of society by the co-op- 
eration of bankers, and the progressive concentration of these 
savings into such volumes as will enable them to serve as 
money-capital, must also depress the rate of interest some- 
what. We shall discuss this more at length later. 

With reference to the determination of the rate of interest, 
Ramsay says that it " depends in part on the rate of gross 
profits, in part on the proportion in which this is divided into 
interest and profits of enterprise. This proportion depends 
on the competition between lenders and borrowers of capital. 
This competition is influenced, but not exclusively regulated, 
by the prospective rate of gross profits.^''^ Competition is 

•"■ Since the rate of interest is on the whole determined by the average rate of 

profit, extraordinary swindling may often go hand in hand with a low rate of 

interest. Instance the railroad swindle in the summer of 1844. The rate of 
interest of the Bank of England was not raised to 3% until October 16th, 1844. 



426 Capitalist Production. 

not exclusively regulated thereby, because on one side many 
are borrowing without any intention of productive invest- 
ment, and because on the other the magnitude of the total 
loanable capital changes with the wealth of the country, in- 
dependently of any change in the gross profits." (Ramsay, 
1. c, p. 206, 207.) 

In order to find the average rate of interest, it is necessary, 
1), to calculate the average rate of interest during its varia- 
tions in the great industrial cycles; 2), to find the rate of 
interest in such investments as require loans of capital for a 
long time. 

The average rate of interest prevailing in a certain coun- 
try — as differentiated from the continually fluctuating mar- 
ket rates — ■ cannot be determined by any law. In this sense 
there is no such thing as a natural rate of interest, such as 
economists speak of when mentioning a natural rate of profit 
and a natural rate of wages. Massie has justly said with ref- 
erence to this (p. 49) : " The only thing which any man 
can be in doubt about on this occasion, is, what proportion of 
these profits do of right belong to the borrower, and what 
to the lender ; and this there is no other method of determin- 
ing than by the opinions of borrowers and lenders in general ; 
for right and wrong, in this respect, are only what common 
consent makes so." The balancing of demand and supply — 
assuming the average rate of profit to be a fact — does not 
signify anything here. Wherever else this formula serves as 
an excuse (and is then practically correct) it is used to find 
the fundamental rule, which is independent of competition 
and rather determines it, this rule indicating the regulating 
limits, or the limiting magnitudes, of competition; this for- 
mula serves particularly as a help to those, who are bounded 
by tlie horizon of practical competition, its phenomena, and 
the conceptions arising from them, and who try tliereby to 
get a rather shallow grasp of the internal connections of 
economic conditions within the sphere of competition. It is 
a method by which to pass from the variations that go with 
competition to the limits of these variations. This is not so 
in the case of the average rate of interest. There is no reason 



Rate of Interest. 427 

by wliich the idea could be justified, that the average con- 
ditions of competition, a balance between lenders and borrow- 
ers, should secure for the lender a rate of interest of 3, 4, 5%, 
etc., on his capital, or a certain percentage of the gross profits, 
say 20% or 50%. Whenever competition as such deter- 
mines anything in this matter, its determination is a matter 
of accident, purely empirical, and only pedantry or fantas- 
ticalness can attempt to represent this accidental character as 
something necessary.^^ Nothing is more amusing than to 
listen in the reports of Parliament of 1857 and 1858 con- 
cerning bank legislation and commercial crises to the rambling 
twaddle of directors of the Bank of England, London bankers, 
provincial bankers, and theoretical professionals, when re- 
ferring to *' the real rate produced." They never get beyond 
such commonplaces as that " the price paid by loanable cap- 
ital probably varies with tlie supply of such capital," that 
*' a high rate of interest and a low rate of profit cannot exist 
together in the long run," and similar specious platitudes.*"^ 
Custom, legal tradition, etc., have as much to do with the de- 
termination of the average rate of interest as competition it- 
self, so far as this rate exists not merely as an average figure, 
but as an actual magnitude. An average rate of profit has 

^* For instance, J. G. Opdyke, in his " Treatise on Political Economy " (New 
York, 1851) makes a very unsuccessful attempt to explain the general extension 
of a rate of interest of 5% by eternal laws. Still more naively proceeds Mr. Karl 
Arnd in " Die naturgemasse V olkszvirthschaft gegeniiber dem Monopoliengeist und 
dem Kommunismus, etc., Hanau, 1845." There we may read: "In the natural 
course of the production of goods there is only one phenomenon, which, in the 
fully settled countries, seems to be destined to regulate in some measure the rate 
of interest; this is the proportion, in which the quantities of wood of the European 
forests increase through their annual new growth. This new growth takes place, 
quite independently of their exchange value, at the rate of 3 or 4 to 100." (How 
queer that the trees should arrange for their new growth independently of their 
exchange value!) "According to this a fall of the rate of interest below its pres- 
ent level in the richest countries cannot be expected." Page 124. (He means, be- 
cause the new growth of the trees is independent of their exchange value, even though 
their exchange value may depend on their new growth.) This deserves to be 
called " the primordial rate of forest interest." Its discoverer has made further 
meritorious contributions in this work to " our science " as the " philosopher of the 
dog tax." 

*' The Bank of England raises and lowers the rate of its discount, always, of 
course, with due consideration of the rate prevailing in the open market, according 
to the imports and exports of gold. " By which gambling in discounts, by antici- 
pation of the alterations in the bank rate, has now become half the trade of the 
great heads of the money centre" — that is, of the London money market. {The 
Theory of the Exchanges, etc., p. 113.) 



428 Capitalist Production. 

to be assumed as a legal rate even in many law disputes, in 
which interest has to be calculated. IS^ow, if we press the in- 
quiry, why the limits of an average rate of interest cannot be 
deduced from general laws, we find the answer simply in the 
nature of interest. It is merely a portion of the average 
profit. The same capital appears in two roles, as a loanable 
capital in the hands of the lender, and as an industrial capi- 
tal, or commercial capital, in the hands of the investing cap- 
italist. But it jDerforms its function as capital only once, and 
produces profit only once. In the process of production it- 
self, the loanable nature of this capital does not play any role. 
To what extent the two parties divide the profit, in Avhich 
they both share, is in itself as much a purely empirical fact 
belonging to the realm of accident as the division of the 
shares of common profit of some corporative business among 
different share holders by percentages. In the division be- 
tween surplus-value and wages, on wdiich the determination 
of the rate of profit essentially rests, the decision is made by 
two very different elements, labor-power and capital ; these 
are functions of two independent variables, which limit one 
another ; and their qualitative difference is the source of the 
quantitative division of the produced value. We shall see 
later that the same takes place in the division of surplus-value 
between rent and profit. But nothing of the kind occurs in 
the case of interest. In this case the qualitative differentia- 
tion^ as we shall see immediately, proceeds rather from the 
purely quantitative division of the same lot of surplus-value. 
From what has gone before it follows that there is no such 
thing as a " natural " rate of interest. But while, in distinc- 
tion from the general rate of profit, there is on one side no 
general law, by which the limits of the average interest, or 
average rate of interest, may be determined and differentiated 
from the continually fluctuating market rates of interest, be- 
cause it is merely a question of dividing the gross profit be- 
tween two possessors of capital under different titles, there is 
on the other side the fact that the rate of interest, whether it 
be the average or the prevalent market rate, appears as a uni- 



Rate of Interest. 429 

form, definite and tangible magnitude in a very different way 
from the general rate of profit/" 

The rate of interest holds a similar relation to the rate of 
profit as the market price of a commodity does to its value. 
To the extent that the rate of interest is determined by the 
rate of profit, it is so always by the general rate of profit, 
not by any specific rates of j)rofit, which may prevail in some 
particular lines of industry, and still less by any extra profit, 
which some individual capitalist may make in some particular 
line of business. ^^ It is a fact, then, that the general rate of 
profit re-appears as an emj^irical, given, reality in the average 
rate of interest, although the latter is not a pure or reliable 
expression of the former. 

It is true, that the rate of interest itself differs according 
to the different classes of securities offered by the borrowers 
and according to the length of time for which the money is 
borrowed ; but it is uniform within every one of these classes 
at a given moment. This distinction, then, does not militate 
against a fixed and uniform shape of the rate of interest.^^ 

70 " ' ji^g price of commodities fluctuates ' continually; they are all made for 
difTerent uses; the money serves for all purposes. The commodities, even those of 
the same kind, differ according to quality; cash money is always of the same value, 
or at least is assumed to be so. Thus it happens that the price of money, which we 
designate by the term interest, has a greater stability and uniformity than that of 
any other thing." (J. Steuart, Principles of Political Economy, French translation, 
17S9, IV, p. 27.) 

"1 " This rule of dividing profits is not, however, to be applied particularly to 
every lender and borrower, but to lenders and borrowers in general . . .re- 
markably great and small gains are the reward of skill and the want of under- 
standing, which lenders have nothing at all to do with; for as they will not suffer 
by the one, they ought not to benefit by the other. What has been said of par- 
ticular men in the same business is applicable to particular sorts of business; if 
the merchants and tradesmen employed in any one branch of trade get more by 
what they borrow than the common profits made by other merchants and 
tradesmen of the same country, the extraordinary gain is theirs, though it re- 
quired only common skill and understanding to get it; and not the lenders,' who 
supplied them with money . . . for the lenders would not have lent their 
money to carry on any business or trade upon lower terms than would admit of 
paying so much as the common rate of interest; and therefore they ought 
not to receive more than that, whatever advantage may be made by their money." 
(Massie, 1. c, p. 50, 51.) 

'- [Bank rate 5%. Market rate of discount 60 days' drafts, 5J^%. The same 
for .3 months' drafts 3i/^%. The same for 6 months' drafts 3 5/16%. Loans to 
bill brokers, day to day, 1 to 2%. The same for one week 3%. Last rate for 
fortnightly loans to stockholders 4J4 to 5%. Deposit allowance (banks) 3>^%. The 



430 Capitalist Production. 

The average rate of interest appears in every country for 
long epochs as a constant magnitude, because the general rate 
of profit — in spite of the continual variation of the partic- 
ular rates of profit, in which a variation in one sphere is offset 
by an opposite variation in another sphere — varies only in 
long intervals. Its relative constancy is revealed in this more 
or less constant nature of the average rate, or common rate, 
of interest. 

As concerns the continually fluctuating market rate of in- 
terest, if exists at any moment as a fixed magnitude, the same 
as the market price of commodities, because all the loanable 
capital as an aggregate mass is continually facing the invested 
capital, so that the relation between the supply of loanable 
capital on one side, and the demand for it on the other, de- 
cide at any time the market level of interest. This is so 
much more the case, the more the development and simul- 
taneous concentration of the credit system impregnates the 
loanable capital with a general social character, and throws 
it all at one time on the market. On the other hand, the gen- 
eral rate of profit always exists as a mere tendency, as a move- 
ment to compensate specific rates of profit. The competition 
between capitalists — ^ which is itself this movement toward 
an equilibrium — consists in this case in their activity of 
gradually withdrawing capital from spheres, in which the 
profit stays for a long time below the average, and in the 
same way taking capital into spheres, in which the profit is 
above the average. Or it may also consist in their distribut- 
ing additional capital gradually and in varying proportions 
between tliese spheres. It is always a matter of a continual 
variation between supply and demand of capital with refer- 
ence to different spheres, never a simultaneous mass effect, 
as it is in the determination of the rate of interest. 

We have seen that interest-bearing capital, although a cate- 
gory absolutely different from a commodity, becomes a pe- 
culiar commodity, so that interest becomes its price, which 

same (discount houses') 3 to 3%%. How large this difference may be for one 
and the same day is shown by the preceding figures of the rate of interest of the 
London money market on December 9th, 1889, taken from the city article of the 
Daily News of December XOth. The minimum is 1%, the maximum 5%. F. £.] 



Rate of Interest. 431 

is fixed at anj" time by supply and demand, just as the 
market price of an ordinary commodity is fixed. The 
market rate of interest, while continually oscillating, ap- 
pears therefore at any moment just as constantly fixed and 
uniform as the prevailing market price of commodities. 
The money-capitalists offer this commodity, and the invest- 
ing capitalists buy it and make a demand for it. This 
does not take place in the equalisation of profits toward a gen- 
eral rate of profit. If the prices of commodities in a certain 
sphere are below or above the price of production (leaving 
aside any oscillations, which are found in every business and 
are due to fluctuations of the industrial cycles), a balance is 
effected by an expansion or restriction of production. This 
signifies an expansion or restriction of the quantities of com- 
modities thrown on the market by industrial capitalists, by 
means of immigration or emigration of capital to and from 
particular spheres. It is by such a compensation of the aver- 
age market prices of commodities to prices of production that 
the deviations of specific rates of profit from the general, or 
average, rate of profit are corrected. This process does not, 
and cannot, at any time assume the appearance as though the 
industrial or mercantile capital as such were commodities 
seeking a buyer, but it does in the case of interest-bearing 
capital. To the extent that this process is perceptible, it is 
so only in the oscillations and compensations of the market 
prices of commodities to prices of production, not in any di- 
rect fixation of the average profit. The general rate of profit 
is actually determined, 1), by the surplus-value produced by 
the capital; 2), by the proportion of this surplus-value to the 
value of the total capital; and, 3), by competition, but only 
to the extent that this is a movement, by which capitals in- 
vested in particular spheres seek to draw equal dividends out 
of this surplus-value in proportion to their relative magni- 
tudes. The general rate of profit, then, derives its determina- 
tion actually from causes, which are quite different and far 
more profound than those of the market rate of interest, which 
is directly and immediately determined by the proportion be- 
tween supply and demand. It is, therefore, not such a tan- 



432 Capitalist Production. 

gible and obvious fact as the rate of interest. The particu- 
lar rates of interest in the different spheres of production are 
themselves more or less unsettled ; but so far as they are per- 
ceptible, it is not their uniformity, but their differences, which 
appear. The general rate of profit itself appears only as the 
minimum limit of profit, not as the empirical and directly 
visible shape of the actual rate of profit. 

In emphasizing this difference between the rate of inter- 
est and the rate of profit, we still leave out of consideration 
the following two circumstances, which favor the consolida- 
tion of the rate of interest: 1), The historical pre-existence 
of interest-bearing capital and the existence of a traditionally 
sanctioned general rate of interest; 2), the far greater direct 
influence exerted by the world market on the fixation of the 
rate of interest, independently of the economic conditions of 
a certain country, compared to its influence on the rate of 
profit. 

The average profit does not appear as a directly existing 
fact, but merely as a final result of the compensation of oppo- 
site fluctuations, to be ascertained by analysis. Not so the 
rate of interest. It is, at least in its local validity, a daily 
fixed thing, a fact which serves even to industrial and mercan- 
tile capitals as a prerequisite and figure in their calculations. 
It becomes a general faculty of every sum of money of 100 
pounds sterling to yield 2, 3, 4, 5%. Meteorological reports 
do not register the stand of the barometer and thermometer 
more accurately than the reports of the Bourse do the stand 
of the rate of interest, not for this or that capital, but for the 
money-capital on the market, for the available loanable capi- 
tal in general. 

On the money market only lenders and borrowers face one 
another. The commodity has the same form, money. All 
specific forms of capital according to its investment. in par- 
ticular spheres of production or circulation are here blotted 
out. It exists here in the undifferentiated, homogenous, form 
of independent value, money. The competition of the indi- 
vidual spheres ceases here. They are all thrown together as 
borrowers of money, and capital likewise faces all of them in 



Rate of Interest. 433 \ 

a form, in which it is as yet indifferent to its definite invest- 
ment in this or that specific manner. The character worn bj 
industrial capital only in its movement and competition be- 
tween individual spheres, the character of a common capital 
of a class comes into evidence here in full force by the de- 
mand and supply of capital. On the other hand, money-cap- 
ital on the money market has actually that form, in which it 
may be distributed as a common element among the capital- 
ists in the various spheres, regardless of its specific employ- 
ment, as the requirements of production in each individual 
sphere may dictate. Add to this that with the development 
of large scale industry money-capital, so far as it appears on 
the market, is not represented by some individual capitalist, 
not by the owner of this or that fraction of the capital on the 
market, but assumes more and more the character of an or- 
ganised mass, which is far more directly subject to the con- 
trol of the representatives of social capital, the bankers, than 
actual production is. Under these circumstances, not only 
the demand for loanable capital is expressed with the full 
force of a class, but also its supply appears as loanable capi- 
tal in masses. 

These are some of the reasons, why the general rate of 
profit appears as a vanishing shape of mist compared to the 
definite rate of interest, which, while fluctuating in its magni- 
tude, yet faces all borrowers as a fixed fact, because it varies 
uniformly for all of them. In like manner the variations in 
the value of money do not prevent it from having the same 
value for all commodities. In like manner the market prices 
of commodities fluctuate daily, yet this does not prevent them 
from being reported daily. In like manner, the rate of in- 
terest is regularly reported as " the price of money." It is 
so for the reason that capital itself is here offered in the 
form of money as a commodity. The fixation of its price is 
thus a fixation of its market price, as it is with all other com- 
modities. Thus the rate of interest always appears as the 
general rate of interest, as so much for so much money, as a 
definite quantity. Not so the rate of profit. It may vary 
even witliin the same sphere for commodities with the same 

2B 



434 Capitalist Production. 

price, according to the different conditions under which dif- 
ferent capitals produce the same commodity. For the rate 
of profit of the individual capital is determined, not by the 
market price of a commodity, hut by the difference between 
the market-price and the cost-price. And these different 
rates of profit, first within the same sphere and then between 
different spheres themselves, can be balanced only by contin- 
ual fluctuations. 



(Note for later elaboration) : A specific form of credit. 
It is known that when money serves as a means of payment 
instead of as a means of purchase, the commodity is trans- 
ferred, but its value is not realised until later. If payment 
is not made until after the commodity has again been sold, 
then this sale does not seem to be the result of the purchase, 
but it is by this sale that the purchase is realised. In other 
words, the sale becomes a means of purchase. — Secondly ; 
Titles to debts, bills of exchange, etc., become means of pay- 
ment for the creditor. — ■ Thirdly : The compensation of ti- 
tles to debts replaces the money. 



CHAPTEE XXIII. 

INTEREST AND PROFIT OF ENTERPRISE,. 

Interest, as we have seen in the two preceding chapters, 
seems to be originally, is originally, and remains in fact 
merely a portion of profit, of surplus-value, which the invest- 
ing capitalist, whether industrial or commercial, has to pay 
over to the owner and lender of money-capital whenever he 
uses loan capital instead of his own. If he employs only his 
own capital, no such division of profit takes place ; it is all 
his. In fact, to the extent that the owners of capital employ 
it themselves in the process of reproduction, they do not com- 
pete in the determination of the rate of interest. This alone 
shows that the category of interest, an impossibility without 
a determination of the rate of interest, is alien to the move- 
ments of industrial capital itself. 



Interest and Profit. 435 

" The rate of interest may be defined to be that propor- 
tional sum which the lender is content to receive, and the 
borrower to pay, for a year or for any longer or shorter pe- 
riod for the use of a certain amount of moneyed capital 
when the owner of capital employs it actively in re- 
production, he does not come under the head of those cap- 
italists, the proportion of whom, to the number of borrowers, 
determines the rate of interest." (Th. Tooke, History of 
Prices, ISTewmarch ed. London, 1857, II, p. 355.) It is in- 
deed only the separation of capitalists into money-capitalists 
and industrial capitalists, which transforms a portion of the 
profit into interest, which creates the category of interest at 
all ; and it is only the competition between these two kinds of 
capitalists which creates the rate of interest. 

So long as capital serves in the process of reproduction — 
even assuming that it belongs to the industrial capitalist him- 
self, so that he has no need of paying it back to some lender . — 
just so long the capitalist has at his disposal as a private in- 
dividual, not this capital itself, but only the profit, which he 
may spend as revenue. So long as his capital performs the 
functions of capital, it belongs to the process of reproduction, 
it is tied up in that process. He is indeed its owner, but 
this ownership does not enable him to dispose of it in some 
other way, so long as he uses it as capital for the exploitation 
of labor. It is the same with the money-capitalist. So long 
as his capital is loaned out and serves as money-capital, it 
brings him as interest a portion of the profit, but he cannot 
dispose of the principal. This becomes evident, whenever he 
loans his capital, say, for one year, or longer, and receives 
interest at certain stipulated times without recovering his 
principal. But even the return of the principal does not 
make any difference here. If he gets it back, then he must 
always loan it out again, so long as he expects it to produce 
the effects of capital, in this case of money-capital, for him. 
While he is keeping it in his own hands, it collects no interest, 
it does not act in the capacity of capital ; and so long as it 
gathers interest and serves as capital, it is not in his hands. 
This accounts for the possibility to loan capital for all eter- 



436 Capitalist Production. 

nity. The following remarks of Tooke against Bosanqiiel are, 
therefore, entirely wrong. He quotes Bosanquet (Metallic, 
Paper, and Credit Currency, p. 73) : "If the rate of interest 
were depressed to 1%, then borrowed capital would be al- 
most on a par with owner's capital." Tooke makes the fol- 
lowing comment on this : " That a capital borrowed at this, 
or even at a lower rate, should be considered as being almost 
on a par with one's own capital is such a strange contention, 
that it would hardly deserve any serious consideration, did 
it not come from so intelligent a writer, who is so well in- 
formed on particular points of his subject. Has he over- 
looked the fact, or does he hold it to be so unimportant, that 
his assumption implies the condition of return payment 'I " 
(Th. Tooke, An Inquiry into the Currency Principle, 2nd. 
edition, London, 1844, p. 80.) If interest were equal to 
zero, then the industrial capitalist working with a borrowed 
capital would be on a par with a capitalist working with his 
own capital. Both of them would pocket the same average 
profit, and capital, whether borrowed or the owner's, serves as 
capital only to the extent that it produces profit. The condi- 
tion of return payment would not alter this in the least. The 
more the rate of interest approaches zero, falling, for in- 
stance, to 1%, the more borrowed capital is jjlaced on a par 
with owner's capital. So long as money-capital is expected 
to act in the capacity of money-capital, it must always be 
loaned out again and again, and this must take place at the 
prevailing rate of interest, say 1%, and always to the same 
class of industrial and commercial capitalists. So long as 
these perform the functions of capitalists, the only difference 
between one working with a borrowed and one working with 
his own capital is that the one has to pay interest and the 
other has not ; that the one pockets the whole profit p, and the 
other only p — i, profit minus interest. To the extent that 
the interest approaches zero, p — z becomes equal to p, and 
to the same extent do both capitals stand on a par. The one 
must pay back the capital and boiTow it again ; but the other, 
so long as his capital is expected to perform its function, must 
likewise advance it again and again to the process of produo 



Interest and Profit. 437 

tion and cannot dispose of it freely without any dependence 
upon this jDrocess. The only remaining difference between 
the two is the obvious one that the one is the owner of his cap- 
ital and the other is not. 

The question which arises here is this : How is it that this 
purely quantitative division of profit into net profit and in- 
terest turns into a qualitative one ? In other words, how is 
it that even the capitalist who employs only his own capital, 
and not a borrowed one, ranges a portion of his gross profit 
under the specific category of interest and calculates it sepa- 
rately as such ? And furthermore, why is all capital, whether 
borrowed or not, differentiated in itself as interest-bearing 
capital from net profit producing capital ? 

It is understood that not every accidental quantitative di- 
vision of profit turns in this manner into a qualitative one. 
For instance, some industrial capitalists associate for some 
business and divide the profits among themselves according to 
some legal agreement. Others carry on their business, each 
by himself, without any associate. These last do not calcu- 
late their profit under two heads, one part as individual profit, 
the other as profits of the company for associates who do not 
exist. In this case the quantitative division does not turn 
into a qualitative one. It takes place, when the ownership 
is vested accidentally in several juridical personalities. It 
does not take place, when this is not the case. 

In order to answer this question, we must dwell a little 
longer on the actual point of departure of the formation of 
interest ; that is, we must take our departure from the as- 
sumption, that the money-capitalist and the industrial capi- 
talist really face one another, not merely as legally different 
persons, but as persons playing entirely different roles in the 
process of reproduction, or as persons in whose hands the 
same capital really passes through a twofold and wholly dif- 
ferent movement. The one merely loans it, the other em- 
ploys it productively. 

For the productive capitalist, who works with a borrowed 
capital, the gross profit falls into two parts, namely into the 
interest to be paid by the lender and the surplus over the in- 



438 Capitalist Production. 

terest forming his own share of the profit. If the general 
rate of profit is given, then this last portion is determined by 
the rate of interest ; if the rate of interest is given, then this 
last portion is determined by the general rate of profit. And 
furthermore: Whatever may be the divergence in any in- 
dividual case of the gross profit, the actual magnitude of value 
of the total profit, from the average profit, it does not alter 
the fact that the portion belonging to the investing capitalist 
is determined by the interest, since this is fixed by the general 
rate of interest (aside from special legal stipulations) and 
assumed to be paid beforehand, before the process of produc- 
tion begins, and before its result, the gross profit, has been 
made. We have seen that the peculiar and specific product 
of capital is surplus-value, or more closely defined, profit. 
But for the capitalist working with a borrowed capital it is 
not the profit, but the profit minus the interest, that portion of 
the profit which remains for him after the interest has been 
deducted. This portion of the profit necessarily appears to 
him as the product of a capital performing its function ; and 
so far as he is concerned it is really so, because he is the rep- 
resentative of capital in action. He is its personification to 
the extent that it is in function, and it performs its function to 
the extent that it is profitably invested in industry or com- 
merce and engaged, through its employer, in such operations 
as are prescribed by the line of its industry. In distinction 
from interest, which he has to pay out of the gross profits 
to the lender, the remaining portion of the profit, which he 
pockets, necessarily assumes the form of industrial or com- 
mercial profit, or, to designate it by a term comprising both 
of them, the form of profit of enterprise. If the gross profit 
is equal to the net profit, then the magnitude of this profit 
of enterprise is exclusively determined by the rate of in- 
terest. If the gross profit varies from the average profit, 
then its difference from the average profit (after deducting 
the interest from both of them) is determined by all con- 
stellations causing a temporary deviation, either of the rate 
of profit in any particular sphere from the general rate of 
profit, or of the profit made by some individual caj)italist 



Interest and Profit. 439 

in a certain sphere from the average profit of this sphere. 
Now, we have seen, that the rate of profit within the process 
of production itself does not depend merely on the surplus- 
value, but also on many other circumstances, for instance, on 
the purchase prices of the means of production, on methods 
more productive than the average, on economies in constant 
capital, etc. And aside from the price of production, it 
depends on special constellations of the market, and in every 
business transaction on the greater or lesser smartness and 
thrift of the individvial capitalists, whether, and to what 
extent, a man will buy or sell above or below the price of 
production and thus appropriate in the process of circulation 
a greater or smaller portion of the total surplus-value. At 
any rate the quantitative division of the gross profit turns 
here into a qualitative one, and it does so all the more as the 
quantitative division itself depends on the nature of thing 
that is to be divided, on the manner in which the capitalist 
manages his capital, and on the amount of gross profit it 
yields for him in his capacity as active capitalist. The in- 
vesting capitalist is here assumed not to be the owner of the 
capital. The ownership of capital is vested in the money- 
capitalist, who stands opposed to him. The interest, which 
he pays to the lender, thus appears as that portion of the 
gross profit, Avhich is absorbed by the ownership of capital 
as such. In distinction therefrom, that portion of the profit, 
which falls to the share of the investing capitalist, appears 
then as profit of enterprise, arising solely from the opera- 
tions, or functions, which he performs with the capital in the 
process of reproduction, particularly of those functions, which 
he performs as the impersonator of enterprise in industry or 
commerce. From his point of view, the interest appears 
merely as the fruit of the ownership of capital, of capital 
" itself " abstracted from the process of capital in reproduc- 
tion, of a capital not " working," not performing its func- 
tion ; while profit of enterprise appears to him as the exclusive 
fruit of the functions, which he performs with the capital, 
a fruit of the movements and performances of capital, of 
performances, which appear to him as his own activity as 



440 Capitalist Production. 

differentiated from the inactivity, the non-participation, of 
the money-capitalist in the process of production. This 
qualitative separation of the two portions of gross profit, 
which makes interest appear as the fruit of abstract capital, of 
the ownership of capital outside of the process of production, 
and profit of enterprise as the fruit of capital performing 
its function in the process of production, of the active role 
played by the employer of capital in the process of repro- 
duction, this qualitative separation is by no means merely a 
subjective point of view of the money-capitalist on one side and 
of the industrial capitalist on the other. It rests upon an 
objective fact, for the interest flows into the hands of the 
money-capitalist, the lender, the mere owner of capital, who 
represents only capital property before the process of pro- 
duction and outside of it; while the profit of enterprise flows 
only into the hands of the investing capitalist, who is not the 
owner of the capital. 

In this way, both the industrial capitalist working with 
borrowed capital and the money-capitalist not working him- 
self with his capital play a role, in which a merely quantita- 
tive division of the gross profit between two persons having 
two different legal titles to the same capital and to the profit 
produced by it turns into a qualitative division. One portion 
of the profit appears now as interest, as a fruit coming to 
capital in one of its forms ; the other portion appears as a 
specific fruit of capital in an opposite form, and thus as 
profit of enterprise. One appears as the fruit of mere owner- 
ship of capital, the other as a fruit of the performance of the 
function of capital, as a fruit of capital in process, of the 
functions performed by the active capitalist. And this ossi- 
fication and individualisation of the two parts of the gross 
profits among themselves, as though they were derived from 
two essentially different sources, now becomes a fixture for 
the entire capitalist class and the total capital. And this takes 
place regardless of whether the capital employed by the ac- 
tive capitalist is borrowed or not, and whether the capital 
belonging to the money-capitalist is employed by himself or 
not The profit of every capital, and consequently the aver- 



Interest and Profit. 441 

age profit established by a mutual compensation of capitals, 
is separated into two qualitatively different, separately in- 
dividualised, and mutually independent parts, to wit, inter- 
est and profit of enterprise, both of which are determined 
by particular laws. The capitalist working with his own 
capital divides the gross profit into interest due to himself 
as its owner lending it to himself, and into profit of enter- 
prise due to himself as an active capitalist performing his 
function, just as does the capitalist working with a borrowed 
capital. For this division, in its qualitative aspects, it be- 
comes immaterial whether the capitalist really has to divide 
his profit with another or not. The employer of capital, even 
when working with his own capital, falls apart into two per- 
sonalities, into the mere o^vner of capital and the employer 
of capital ; his capital itself, with reference to the categories 
of j)rofit which it yields, falls apart into capital property out- 
side Gi the process of production and yielding interest of 
itself, and capital in the process of production yielding; profit 
of enterprise through its function in the process. 

Interest, then, becomes so firmly established, that it no 
longer appears as a division of gross profits, to which produc- 
tion is indifferent and which takes place only occasionally 
when the industrial capitalist works with the capital of some 
other man. Even when he works wdth his own capital, hie 
profit is separated into interest and profit of enterprise. TiiUL 
a merely quantitative division turns into a qualitative one. 
It takes place without regard to the fact, whether the indus- 
trial capitalist is, or is not, the owner of the capital employed 
by him. It is no longer a question of different quota of profit 
assigned to different persons, but of two different categories 
of profit holding different relations to the capital, being re- 
lated to different forms of capital. 

It is a simple matter, in view of the foregoing remarks, to 
explain, why this character of qualitative separation becomes 
established for the total social capital and the entire capitalist 
class, as soon as the separation of gross profits into interest 
and profits of enterprise has assumed its qualitative aspect. 

1) This follows from the simple empirical circumstance, 
that the majority of the industrial capitalists, even i-.' in dif-- 



442 Capitalist Production. 

ferent proportional numbers, work with their own and with 
borrowed capital, and that the proportion between self-owned 
and borrowed capital changes in different periods. 

2) The transformation of a portion of the gross profits 
into the shape of interest converts the other portion into profit 
of enterprise. The latter is indeed but the antagonistic form 
assumed bj the excess of the gross profit over the interest, as 
soon as interest exists as an independent category. The entire 
analysis of the problem, how gross profit is differentiated into 
interest and profit of enterprise, resolves itself into the in- 
quiry, how a portion of the gross profits becomes univei'sally 
ossified and individualised in the shape of interest. Now, 
historically, interest-bearing capital exists as a complete, tra- 
ditional form, and with it interest as a ready subdivision of 
the surplus-value produced by capital, long before the capital- 
ist mode of production and the conceptions of capital and 
profit belonging to it existed. Thus it is that popular con- 
ception still regards money-capital, interest-bearing capital, 
as typical capital, as capital par excellence. Thus, also, we 
find up to the time of Massie the prevailing idea, that it is 
money as such, which is paid in interest. The fact that loaned 
capital yields interest, whether it is actually employed as 
interest or not — even when borrowed only for consumption 
— lends strength to the idea of the independence of this form 
of capital. The best proof of the independence, which inter- 
est seemed to have with reference to profit cind interest-bearing 
capital with reference to industrial capital, during the first 
periods of the capitalist mode of production, is tiiat it was 
not until the middle of the 18th jentury that Massie, and 
after him Hume, discovered the fact that interest is but a 
portion of the gross profit, and that such a discovery was 
necessary at all. 

3) Whether the industrial capitalist works Avith his own 
or with borrowed capital, it does not alter the fact that the 
class ox money-capitalists face him as a special class of 
capitalists^ money-cupital as an independent form of capital, 
and interest as the independent form of surplus-value peculiar 
to this specific capital. 



Interest and Profit. 443 

Qualitatively speaking, interest is surplus-value supplied 
by the mere ownership of capital, yielded by capital as such, 
even though its owner remains outside of the process of re- 
production. It is surplus-value realised by capital outside 
of its process. 

Quantitatively speaking, that portion of profit, which forms 
interest, does not seem to be related to industrial or com- 
mercial capital as such, but to money-capital, and the rate 
of this portioxx of durplus-value, the rate of interest, fortifies 
this relation. For, in the first place, the rate of interest, de- 
spite its dependence upon the general rate of profit, is inde- 
pendently determined, and, in the second place, it appears with 
all its variations as a fixed, unifomi, tangible and always 
given relation, just like the market-prices of commodities, 
compared t(. the intangible rate of profit. If all capital were 
in the hands of the industrial capitalists, there would be no 
interest ^nd no rate of interest. The independent form as- 
sumed by the quantitative division of gross profit creates the 
qualitative one. If the industrial capitalist compares him- 
self to tLie money-capitalist, only his profit of enterprise dis- 
tinguishes him from the other man, the excess of his gross 
profit over the average interest, the latter being empirically 
given by means of the rate of interest. On the other hand, if 
he compares himself to the industrial capitalist working with 
his own, instead of borrowed capital, the other differs from 
him only as a money-capitalist by pocketing the interest in- 
stead of paying it over to some one else. On either side the 
portion of the gross profit differing from the interest appears 
to him as profit of enterprise, and interest itself as a surplus- 
value yielded by capital as such, which it would yield even 
without any productive employment. 

This is practically correct for the individual capitalist. 
Tie has the choice, whether he wants to invest his capital as 
an interest-bearing one or as a productive one, regardless of 
whether it exists in the form of money-capital from the out- 
set, or whether it has to be converted into money-capital. But 
to make this conception a general one and apply it to the total 
capital of society, as some vulgar economists do, who even 



/j/ j/j Capitalist Production. 

go so far as to regard this capital as the source of profit, is, 
of course, preposterous. The idea of a conversion of the total 
capital of society into money-capital without the existence 
of people, who shall buy and utilise the means of production, 
which form the total capital with the exception of relatively 
small portion existing in the shape of money, is sheer non- 
sense. It implies the additional nonsense, that capital could 
yield interest on the basis of capitalist production without 
performing any productive function, in other words, with- 
out producing any surplus-value, of which interest would be 
but a part; that the capitalist mode of production could run 
its course without any capitalist production. If an excessively 
large number of capitalists were to convert their capital into 
money-capital, it would result in an extraordinary depre- 
ciation of money-capital and an extraordinary fall of the rate 
of interest ; many would at once be face to face with the im- 
possibility of living on their interest, and would be com- 
pelled to retransform themselves into industrial capitalists. 
But we repeat that it is a fact for the individual capitalist. 
For this reason, he necessarily considers that part of his aver- 
age profit, which is equal to the average interest, as a fruit 
of his capital as such, apart from the process of production, 
even when he works with his own capital ; and he differ- 
entiates from this portion, from this interest, that surplus of 
the gross profit, which constitutes his profit of enterprise. 

4) (A blank in the manuscript.) 

We have seen that that portion of the profit, which the 
investing capitalist has to pay to the mere owner of bor- 
roAved capital, converts itself into the independent form of a 
portion of profit, which all capital as such^ whether bor- 
rowed or not, yields under the name of interest. How large 
that portion shall be is determined by the quotation of the 
average rate of interest. Its origin does not show itself any 
more in anything but the fact that the investing capitalist, 
when owner of his capital, no longer competes in the deter- 
mination of the rate of interest, at least not actively. The 
purely quantitative division of profit between two persons 
having different legal titles to it has turned into a qualitative 



Interest and Profit. 445 

division, which seems to arise from the nature of capital and 
profit itself. For, as we have seen, as soon as a portion of 
the profit generally assumes the form of interest, the dif- 
ference between the average profit and the interest, or the 
portion of profit exceeding the interest, assumes a form an- 
tagonistic to interest, that of profit of enterprise. These two 
forms, interest and profit of enterprise, exist only as oppo- 
sites. They are not reduced to the surplus-value, of which 
they represent proportional parts cast in different moulds, 
but are merely referred to one another. Because one por- 
tion converts itself into interest, the other portion appears as 
profit of enterprise. 

By profit we always mean average profit here, since the 
variations of individual profit and of profit in different 
spheres, due to the fluctuations of the competitive struggle and 
other circumstances affecting the distribution of the average 
profit, or surplus-value, do not concern us in this analysis. 
This applies quite generally to the foregoing inquiry. 

Interest is then net profit, as Ramsay calls it, which capital 
as such yields, either for the mere lender remaining outside 
of the process of reproduction, or for the owner employing 
his capital productively. For this latter capitalist also, cap- 
ital yields this net profit, not in his capacity as a productive 
capitalist, but of money-capitalist and lender of his own 
capital as an interest-bearing one to himself as an investing 
capitalist. Just as the conversion of money, and of value in 
general, into capital is the constant result of capitalist pro- 
duction, so its existence in the form of capital is its constant 
prerequisite. By its ability to transform itself into means 
of production, it commands continually unpaid labor and 
thereby transforms the process of production and circulation 
of commodities into a production of surplus-value for its 
owner. Interest is, therefore, merely the expression of the 
fact, that value in general, in other words, value represent- 
ing materialised labor in its general social form, or value 
assuming the form of means of production in the actual pro- 
cess of production, faces living labor-power as an independent 
power, and is a means of appropriating unpaid labor ; and that 



44^ Capitalist Production. 

it is such a power, because it represents the property of an- 
other in opposition to the laborer. But on the other hand, 
this opposition to wage-labor is obliterated in the form of in- 
terest ; for interest-bearing capital as such has not wage-labor, 
but productive capital for its object. The lending capitalist 
faces as such the capitalist performing his actual function in 
the process of reproduction, not the wage-worker, who is ex- 
propriated from the means of production under capitalist pro- 
duction. Interest-bearing capital represents capital as owner- 
ship compared to capital as a function. But to the extent that 
capital does not perform its function, it does not exploit the 
laborers and does not come into opposition to labor. 

On the other hand, profit of enterprise is not in opposition 
to wage-labor, but only to interest. 

1) Assuming the average j^rofit to be given, the rate of 
profit on enterprise is not detemiined by wages, but by the 
rate of interest. It is high or low inversely as the rate of 
interest is.'^^ 

2) The investing capitalist derives his claim to profits of 
enterprise, and consequently the profit of enterprise itself, 
not from his ownership of capital, but from its production 
function as distinguished from the form, in which it is only 
inert jDroperty. This appears as an obviously existing con- 
trast, whenever he is working with a borrowed capital, so 
that interest and profits of enterprise each go to different 
persons. The profit of enterprise arises from the function of 
capital in the process of reproduction, it is a result of the 
operations by which the investing capitalist promotes tliis 
function of industrial and commercial capital. But to be a 
representative of invested capital is not a sinecure like the 
representation of interest-bearing capital. On the basis of 
capitalist production, the capitalist directs the processes of 
production and circulation. The exploitation of productive 
labor requires exertion, whether he performs it himself or 
has it performed by some one else in his name. In distinction 
from interest, his profit of enterprise appears to him as in- 

The profits of enterprise depend upon the net profits of capital, not the 
latter upon the former." (Ramsay, 1. c, p. 214. Net profits with Ramsay always 
mean interest.) 



Interest and Profit. 447 

dependent of the ownership of capital, it seems to be the 
result of his function as a non-proprietor — a laborer. 

Under these circumstances his brain necessarily conceives 
the idea, that his profit of enterprise, far from being in op- 
position to wage-labor and representing only the unpaid labor 
of others, is rather itself wages of lahor, wages of superin- 
tendence of labor. These wages are superior to those of the 
common laborer, 1) because they pay for more complicated 
labor, 2) because the capitalist pays them to himself. The 
fact that his function as a capitalist consists in creating 
surplus-value, which is unpaid labor, and to create it under 
the most economical conditions, is entirely forgotten over the 
contrast, that the interest falls to the share of the capitalist, 
even if he does not perform any capitalist function and is 
merely the owner of capital ; and that, on the other hand, the 
proiit of enterprise falls to the share of the investing capital- 
ist, even if he is not the owner of the capital, which he em- 
ploys. The antagonistic form of the two parts, into which 
profit, or surplus-value is divided, leads him to forget, that 
both parts are surplus-value, and that this division does not 
alter the nature, origin, and living conditions of surplus- 
value. 

In the process of reproduction, the investing capitalist rep- 
resents capital as the property of another in opposition to 
the wage-laborers, and the money-capitalist, represented by 
the investing capitalist, shares in the exploitation of labor. 
The fact, that the investing capitalist can perform his func- 
tion or employ means of production as capital only as the 
personification of the means of production in opposition to 
the laborers, is forgotten over the antagonism between the 
function of capital in the process of reproduction and the 
mere ownership of capital outside of the process of reproduc- 
tion. 

In fact, the fomis assumed by the two parts of profit, of 
surplus-value, when divided into interest and profit of enter- 
prise, do not express their relation to labor, because their rela- 
tion refers only to themselves and to the profit, or rather to 
the surplus-value as a whole compared to them as parts of 



448 Capitalist Production. 

this unit. The proportion in which the profit is divided, and 
the different legal titles, by which this division is sanctioned, 
are based on the assumption that profit is already in existence. 
If, therefore, the capitalist is the owner of the capital, which 
he employs, he pockets the whole profit, or surplus-value. 
It is immaterial to the laborer, whether the capitalist pockets 
the whole profit, or whether he has to pay over a part of it 
to some other person, who has a legal claim to it. The rea- 
sons for dividing the profit among two kinds of capitalists 
thus turn surreptitiously into reasons for the existence of 
the surplus-value to be divided, Avhich the capital as such 
draws out of the process of reproduction quite apart from 
any subsequent division. Seeing that the interest is opposed 
to the profit of enterprise, and the profit of enterprise to the 
interest, that they are both opposed to one another, but not 
to labor, it follows that both profit of enterprise plus interest, 
in other words, the total profit, and further the surplus-value, 
are derived — from what ? From the antagonistic form of 
its two parts ! But the profit is produced, before this division 
takes place, and before there can be any mention of it. 

Interest-bearing capital stands the test of such only to the 
extent that borrowed money is actually converted into capital, 
and that a surplus is produced with it, of which the interest 
is a part. But this does not militate against the fact, that 
the faculty of drawing interest is innate in it outside of the 
process of production. So does labor-power evince its faculty 
of producing value only so long as it is employed and ma- 
terialised in the labor-process; yet this does not argue against 
the fact, that labor-power is potentially a faculty of creating 
values, which does not arise out of the mere process of pro- 
duction, but is rather antecedent to it. As a faculty creat- 
ing value, it is bought. One might also buy it without set- 
ting it to work productively. It may be used for purely 
personal ends, for instance, for personal service, etc. So it 
is with capital. It is the borrower's affair, whether he em- 
ploys it as capital, actually setting in motion its inherent 
faculty of producing surplus-value. What he pays, is in 



Interest and Profit. 449 

either case the surplus-value inherently latent in the com- 
modity capital. 



Let us now consider profit of enterprise more in detail. 

Since the specific social faculty of capital under capitalist 
production, that of being property in the hands of one and 
yet commanding the labor-power of another, becomes fixed, 
so that interest appears as a part of the surplus-value pro- 
duced by capital in this interrelation, the other part of the 
surplus-value, the profit of enterprise, must necessarily ap- 
pear as derived, not from capital as such, but from the process 
of production, separated from its social faculty, which is 
already expressed as a distinct mode of existence by the term 
interest in capital. I^ow, separated from capital, the process 
of production is simply a labor-process. Hence the industrial 
capitalist as differentiated from the owner of capital does 
not appear, in this case, as a functionary of capital, but as 
a functionaiy separated from capital, as a simple agent of the 
labor -process, as a laborer, and specifically as a wage-laborer. 

Interest itself expresses precisely the existence of the con- 
ditions of labor in the form of capital, in their social an- 
tagonism to labor, and in their transformation into personal 
powers in opposition to labor and dominating it. Interest 
represents the mere ownership of capital as a means of appro- 
priating the products of the labor of others. But it represents 
this character of capital as something, which belongs to it 
outside of the process of production, and which is not by any 
means a result of the specifically capitalist nature of this 
process of production itself. Interest places this process in 
such a light, that it does not seem opposed to labor, but rather 
without any relation to labor and simply the relation of one 
capitalist toward another. It thus assumes a form which 
places it outside of the relation of capital toward labor, and 
renders it indifferent toward this relation. In interest, then, 
which is that specific form of profit, in which the antagonistic 
character of capital assumes an independent form, this is 

done in such a way, that the antagonism here appears com- 
ae 



45^ Capitalist Production. 

pletely obliterated and left out of consideration. Interest is 
a relation between two capitalists, not between a capitalist 
and a laborer. 

On the other hand, this form of interest bestows upon the 
other portion of profit the qualitative form of profit of enter- 
prise, and, further on, of wages of superintendence. The 
specific functions, which the capitalist as such has to per- 
form, and which precisely differentiate him from the laborer 
and bring him into opposition to the laborer, are presented 
as mere functions of labor. He creates surplus-value, not 
because he performs the work of a capitalist^ but because he 
also works aside from his capacity as a capitalist. This por- 
tion of surplus-value is thus no longer surplus-value, but its 
opposite, an equivalent for labor performed. Owing to the 
fact that the estranged character of capital, its antagonism 
to labor, has been relegated to a place outside of the actual 
process of exploitation, namely to the interest-bearing capital, 
this process of exploitation itself appears as a simple labor 
process, in which the exploiting capitalist performs merely 
a different kind of labor than the laborer. In this way the 
labor of exploitation and the exploited labor both appear as 
labor, as identical. The labor of exploitation is labor just 
as well as the labor wdiich is exploited. It is the interest 
which represents the social form of capital, but it does so in 
a neutral and indifferent way. It is the profit of enterprise 
which represents the economic function of capital, but it does 
so in a way, which takes no cognizance of the definite capital- 
ist character of this function. 

In the present case, what passes in the consciousness of 
the capitalist is quite similar to what passes in the case of 
the fluctuations for wliich the capitalist makes allowance 
in the equalisation of the average profits, as indicated in part 
II of this volume. These compensating causes, which exert 
a determining influence on the distribution of the surplus- 
value, are distorted by the capitalist conception into originat- 
ing causes and subjective justifications of profit itself. 

The conception of profit of enterprise in the shape of wages 
of superintendence of labor, arising from the antagonism of 



J 



Interest and Profit. 451 

profit of enterprise to interest, is further strengthened bj 
the fact, that a portion of the profit may indeed be separated, 
and is sej)a rated in reality, as wages, or rather the reverse, 
that a portion of the wages appear under capitalist produc- 
tion as a separate portion of the profit. Already Adam Smith 
indicated, that this portion assumes its pure form, independ- 
ently of profit and wholly separated from it (as the sum of 
interest and profit of enterprise), and likewise separated 
from that portion of the profit, which remains in the shape 
of profit of enterprise after the deduction of the interest, in 
the salary of the superintendent in those lines of business, 
whose size, etc., permits a sufficient division of labor to justify 
a special salary for the labor of a superintendent. 

The labor of superintendence and management will nat- 
urally be required whenever the direct process of production 
assumes the fonn of a combined social process, and does not 
rest on the isolated labor of independent producers.'^'* It 
has, however, a double nature. 

On one side, all labors, in which many individuals co- 
operate, necessarily require for the connection and unity of 
the process one commanding will, and this performs a func- 
tion, which does not refer to fragmentary operations, but to 
the combined labor of the workshop, in the same way as does 
that of a director of an orchestra. This is a kind of produc- 
tive labor, which must be performed in every mode of pro- 
duction requiring a combination of labors. 

On the other side, quite apart from any commercial de- 
partment, this labor of superintendence necessarily arises in 
all modes of production, which are based on the antagonism 
between the laborer as a direct producer and the owner of 
the means of production. To the extent that this antagonism 
becomes pronounced, the role played by superintendence in- 
creases in importance. Hence it reaches its maximum in the 
slave system. '^^ But it is indispensable also under the 

" " Superintendence is here (in the case of the farm owner) completely dis- 
pensed with." (J. E. Cairnes, The Slave Power, London, 1862, p. 48.) 

'^ " If the nature of the work requires that the workmen (namely the slaves) 
should be dispersed over an extended area, the number of overseers, and, there- 
fore, the cost of the labor which requires this supervision, will be proportionateir 
increased." (Cairnes, 1. c, p. 44.) 



452 Capitalist Prodiiciion. 

capitalist mode of production since then the process of pro- 
duction is at the same time the process bj which the capital- 
ist consumes the labor-power of the laborer. In like manner, 
the labor of superintendence and universal interference by 
the government in despotic states comprises both the per- 
formance of the common operations arising from the nature 
of all communities and the specific functions arising from 
the antagonism between the government and the mass of 
the people. 

In the works of ancient writers, who have the slave system 
under their eyes, both sides of the labor of superintendence 
are as inseparably combined in theory as they were in prac- 
tice. So it is also in the works of the modem economists, 
who regard the capitalist mode of production as the absolute 
mode of production. On the other hand, as I shall show 
immediately by an example, the apologists of the modern 
slave system utilise the labor of superintendence quite as 
much to justify slaveiy, as the other economists do to justify 
the wage system. 

The vilUcus in Gate's time: "At the head of the rural 
slave community (familia rustica) stood the manager {villicus, 
derived from villa), who took receipts and made expenditures, 
bought and sold, received instructions from the master, gave 
orders and meted out punishment in his absence. 
The manager occupied naturally a freer position than the 
other slaves ; the Magonian books advise to permit him to 
marry, raise children, and have his own funds, and Cato 
recommends that he be married with the female manager ; 
he alone probably had any prospects of being liberated by 
the master for good behavior. For the rest, all of them formed 
one common economy. . . . Every slave, including the 
manager himself, was supplied with his necessities at the 
expense of his master, in definite periods according to fixed 
rates, and he had to get along on that. The quantity varied 
according to labor, and for this reason the manager, whose 
work was lighter than that of the other slaves, received a 
smaller ration than the others." (Mommsen, Romische 
GescUcMe, second edition, 1856, I, p. 808-810.) 



Interest and Profit. 453 

Aristotle : " For the master proves himself such not in 
the huying, but in the employing of slaves." (The capitalist 
proves himself such, not by the ownership of capital, which 
gives him the power to buy labor-power, but in the employ- 
ment of laborers, nowadays of wage laborers in the process 
of production. ) " But there is nothing great about this 
knowledge. Tor whatever the slave must be able to perform, 
the master must be able to order. Whenever the masters 
are not compelled to drudge at superintendence, the manager 
assumes tliis honor, while the masters attend to affairs of state 
or study philosophy." (Aristotle, Repuhllc, Bekker edition, 
Book I, Y.) 

Aristotle says in plain words, that rulership on the political 
and economic field imposes upon the powers that be the func- 
tions of government, and that they must understand the art 
of consuming labor-power. And he adds, that this labor of 
superintendence is not a matter of great moment, and that 
for this reason the master, who is wealthy enough, leaves tlie 
" honor " of this drudgery to an overseer. 

The labor of management and superintendence arising out 
of the servitude of the direct producers has often been quoted 
in justification of this relation, not because it is a function 
due to the nature of all combined social labor, but because 
it is due to the antagonism between the owmer of means of 
production and the owner of mere labor-power, regardless of 
whether this labor-power is bought by buying the laborer him- 
self, as it is under the slave system, or whether the laborer 
himself sells his labor-power, so that the process of produc- 
tion is the process by which capital consumes his labor-power. 
And exploitation, the appropriation of the unpaid labor of 
others, has quite as often been represented as the reward justly 
due to the owner of capital for his labor. But it was never 
better defended than it was by a champion of slavery in the 
United States, a certain lawyer O'Connor, at a meeting held 
in ISTew York, on December 19th, 1859, under the slogan of 
'Mustice for the South." " ISTow, Gentlemen," he said amid 
great applause, " nature itself has assigned this condition of 
servitude to the negro. He has the strength and is fit to work ; 



454 Capitalist Production. 

but nature, which gave him this strength, denied him both 
the intelligence to rule and the will to work. (Applause.) 
Both are denied to him ! And the same nature, which denied 
him the will to work, gave him a master, wdio should enforce 
this will, and make a useful servant of him in a climate, to 
which he is well adapted, for his own benefit and that of the 
master who rules him. I assert that it is no injustice to 
leave the negro in the position, into which nature placed him ; 
to put a master over him ; and he is not robbed of any right, 
if he is compelled to labor in return for this, and to supply a 
just compensation for his master in return for the labor and 
the talents devoted to ruling him and to making him useful 
to himself and to society." 

]Srow, the wage-laborer, like the slave, must have a master, 
wdio shall put him to work and rule him. And assmning this 
relation of master and servant to exist, it is quite proper to 
compel the wage-laborer to produce his own wages and also 
the wages of superintendence, a compensation for the labor 
of ruling and superintending him, " a just compensation for 
his master in return for the labor and talents devoted to rul- 
ing him and to making him useful to himself and to society." 
The labor of superintendence and management arising out 
of the antagonistic character and rule of capital over labor, 
which all modes of production based on class antagonisms 
have in common wdth the capitalist mode, is directly and in- 
separably connected, also under the capitalist system, with 
those productive functions, which all combined social labor 
assigns to individuals as their special tasks. The wages of 
an epitropos, or regisseur, as he used to be called in feudal 
France, are entirely differentiated from the profit and as- 
sumes the form of wages for skilled hj^bor, wdienever the busi- 
ness is operated on a sufficiently large scale to warrant pay- 
ing such a manager, although our industrial capitalists do 
not " attend to affairs of state or study philosophy " for all 
that. 

That not the industrial capitalists, but the industrial man- 
agers are " the soul of our industrial system," has already 



A 



Interest and Profit. 455 

been remarked by Mr. Ure.^*^ So far as the commercial part 
of the business is concerned, we have said as much as was 
necessary in the preceding j)art of this volume. 

The capitalist mode of production itself has brought mat- 
ters to such a point, that the labor of superintendence, en- 
tirely separated from the ownership of capital, walks the 
streets. It is, therefore, no longer necessary for the capitalist 
to perform the labor of superintendence himself. A director of 
an orchestra need not be the owner of tlie instruments of its 
members, nor is it a part of his function as a director, that 
he should have anything to do with the wages of the other 
musicians. The co-operative factories furnish the proof, that 
the capitalist has become just as superfluous as a functionary 
in production as he himself, in his highest developed form, 
finds the great real estate owner superfluous. To the extent 
that the labor of the capitalist is not the purely capitalistic 
one arising from the process of production and ceasing with 
capital itself, to the extent that it is not limited to the func- 
tion of exploiting the labor of others, to the extent that it 
rather arises from the social form of the labor-process as a 
combination and co-operation of many for the purpose of 
bringing about a common result, to that extent it is just as 
independent of capital as that form itself, as soon as it has 
burst its capitalistic shell. To say that this labor as a capital- 
istic one, as a function of the capitalist is necessary, amounts 
merely to saying that the vulgar economist cannot conceive 
of the forms developed in the womb of capitalist production 
separated and freed from their antagonistic capitalist char- 
acter. Compared to the money-capitalist the industrial cap- 
italist is a laborer, but a laboring capitalist, an exploiter of 
the labor of others. The wages which he claims and pockets 
for this labor amount exactly to the appropriated quantity 
of another's labor and depend directly upon the rate of ex- 
ploitation of this labor, so far as he takes the trouble to assume 
the necessary burdens of exploitation. They do not depend 

■'^ A. Ure, Philosofhy of Manufactures, French translation, 1836, I, p. 68, where 
this Pindarus of the manufacturers at the same time testifies that most of the 
manufacturers have not the slightest understanding of the mechanism, which they 
set in motion. 



456 Capitalist Production. 

upon the degree of his exertions in carrying on this exploita- 
^ tion. He can easily shift this burden to the shoulders of a 
superintendent for moderate pay. After every crisis one may 
see plenty of ex-manufacturers in the English factory dis- 
tricts, who for low wages superintend their own former fac- 
tories as managers of the new owners, who are frequently 
their creditors.''^^ 

The wages of superintendence, both for the commercial 
and the industrial manager, appear completely separated from 
the profits of enterprise in the co-operative factories of the 
laborers as well as in capitalistic stock companies. The sep- 
aration of the wages of superintendence from the profits of 
enterprise, Avhich is at other times accidental, is here con- 
stant. In the co-operative factory the antagonistic character 
of the labor of superintendence disappears, since the manager 
is paid by the laborers instead of representing capital again-t 
them. Stock companies in general, developed with the credit 
system, have a tendency to separate this labor of management 
as a function more and more from the ownership of capital, 
whether it be self-owned or borrowed. In the same way the 
development of bourgeois society separates the functions of 
judges and administrators from feudal property, whose pre- 
rogatives they were in feudal times. Since the mere owner 
of capital, the money-capitalist, has to face the investing 
capitalist, while money-capital itself assumes a social char- 
acter with the advance of credit, being concentrated in banks 
and loaned by them instead of by its original owners, and 
since, on the other hand, the mere manager, who has no title 
whatever to the capital, whether by borrowing or otherwise, 
performs all real functions pertaining to the investing capital- 
ist as such, only the functipnary remains and the capitalist 
disappears from the process of production as a superfluous 
person. 

From the public accounts of the co-operative factories in 

'''' In one case known to me, after the crisis of 1868, a bankrupt manufacturer 
became the paid wage-laborer of his own former employes. This factory was 
operated after the bankruptcy of its owner by a laborers' co-operative, and its 
former owner was employed as manager. — F. E. 



4 



Interest and Profit. 457 

England "'^ it is manifest, that the profit, after the deduc- 
tion of the wages of the superintendent, which form a part 
of the invested capital the same as the wages of the other 
laborers, was higher than the average profit, although they 
paid occasionally a much higher interest than the private 
factories. The cause of the greater profit was in all these 
cases a greater economy in the use of constant capital. What 
interests us particularly here is the fact that here the average 
profit (= interest + profit of enterprise) presents itself 
actually and palpably as a magnitude, which is wholly sep- 
arated from the wages of superintendence. Since the profit 
was here higher than the average profit, the profit of enter- 
prise was also higher than the current one. 

The same fact is revealed by some capitalist stock com- 
panies, such as joint stock banks. The London and West- 
minster Bank paid in 1863 annual dividends of 30%, the 
Union Bank of London and others 15%. Aside from the 
salary of the director, the interest paid for deposits is here 
deducted from the gross profit. The high profit is explained 
in this case by the small proportion of the paid-up capital 
to the deposits. For instance, in the case of the London and 
Westminster Bank, it was in 1863: Paid-up Capital 1,000,- 
000 pounds sterling; deposits 14,540,275 pounds sterling. 
In that of the Union Bank of London, 1863 : Paid-up capital 
600,000 pounds sterling; deposits 12,384,173 pounds sterling. 

The confounding of the profit of enterprise with the w^ages 
of superintendence or management was due originally to the 
antagonistic form assumed toward interest by the surplus 
over the interest. It was further promoted by the apologetic 
intention to represent profit, not as a surplus-value derived 
from unpaid labor, but as wages of the capitalist himself for 
labor performed by him. This was met on the part of the 
socialists by the demand, that profit should actually be re- 
duced to what it pretended to be theoretically, namely mere 
wages of superintendence. And this demand was all the more 
disagreeable to the apologists of the capitalists, as these wages 

'* The accounts qvioted here go no farther than 1864, since the above was written 
in 1865.— F. E. 



458 Capitalist Production. 

of superintendence, like all other wages, found on one hand 
their level and fixed market-price to the extent that a numer- 
ous class of industrial and commercial superintendents was 
formed/^ while on the other hand these wages fell;, like all 
wages for skilled lahor, with the general development, which 
reduces the cost of production of specifically trained labor- jj 
power.^*^ With the development of co-operation on the part ! 
of the laborers, of stock enterprises on the part of the bour- 
geoisie, even the last pretext for the confusion in matters of 
profit of enterprise and wages of management was removed, 
and profit aj^peared also in practice what it was undeniably 
in theory, mere surplus-value, a value for which no equiva- , 
lent was paid, realised unpaid labor. It was then seen that 
the investing capitalist really exploits labor, and that the fruit 
of his exploitation, when he worked witli a borrowed capital, 
was divided into interest and profit of enterprise, a surplus 
of profit over interest. 

On the basis of capitalist production, a new swindle de- 
velops in stock enterprises with the wages of management. 
It consists in placing above the actual director a board of 
managers or directors, for whom superintendence and man- 
agement serve in reality only as a pretext for plundering 
stockholders and amassing wealth. Very interesting details 
concerning this are found in '' The City or the Physiology 
of London Business; ivilh Sketches on 'Change, and the Cof- 
fee Houses, London. 1845." Here is a sample: "What 
bankers and merchants gain by being on the boards of eight 
or nine different companies, may be seen from the following 
illustration: The private account of Mr. Timothy Abraham 
Curtis, handed in by the court of bankruptcy on his failure, 

" " Masters are laborers as well as their journeymen. In this character their 
interest is precisely the same as of their men. But they are also either capitalists, 
or the agents of capitalists, and in this respect their interest is decidedly opposed 
to the interest of the workmen." (P. 27.) " The wide spread of education 
among the journeymen mechanics of this country diminishes daily the value of 
the labor and skill of almost all masters and employers by increasing the num- 
ber of persons who possess their peculiar knowledge." (P. 30, Hodgskin, Labor 
defended against the Claims of Capital, etc., London, 1825.) 

^ " The general relaxation of conventional barriers, the increased facilities of 
education tend to bring down the wages of skilled labor instead of raising those 
of the unskilled." (J. St. Mill, Principles of Political Economy, 2nd ed., London, 
1849, I, p. 463.) 



Interest and Profit. 459 

showed an income of 8,900 pounds sterling per year under 
the head of directorships. Since Mr. Curtis had been a direc- 
tor of the Bank of England and of the East Indian Company, 
every stock company was happy to secure him as a director." 
(P. 82.) — The remuneration of the directors of such com- 
panies for each weekly meeting is at least one guinea. The 
proceedings of the court of bankruptcy show, that these wages 
of superintendence are as a rule inversely proportioned to 
the actual superintenderce performed by these nominal direc- 
tors. 



CHAPTEK XXIV. 

EXTEENALISATION OF THE RELATIONS OF CAPITAL IN THE FORM 
OF INTEREST-BEARING CAPITAL. 

In the interest-bearing capital, the relations of capital as- 
sume their most externalised and most fetish-like form. We 
have here M — M' money creating more money, self -expend- 
ing value, without the process intermediate between these two 
extremes. In the merchants' capital, M — C — M', there is 
at least the general form of the capitalistic process, although 
it clings to the sphere of circulation, so that profit appears 
merely as profit from selling; but it is at least seen to be 
the product of a social relation^ not the product of a mere 
tiling. The form of merchants' capital presents at least the 
aspect of a process, of a unity of antagonistic phases, of a 
movement divided into two transactions, namely into the pur- 
chase and sale of commodities. This is obliterated in 
M — M', the form of interest-bearing capital. For instance, 
if 1,000 pounds sterling are loaned by some capitalist, when 
the rate of interest is 5%, then the value of 1,000 pounds 
sterling as a capital for one year is C -(- Ci', C standing for 
the capital and i' for the rate of interest. In the present 
case this would mean 5%, or Yf"oOi"To ' ^^^ 1,000 -f- 1,000 
times T^ ^1,050 pounds sterling. The value of 1,000 
pounds sterling as capital is 1,050 pounds sterling, that is, 
capital is not a simple magnitude. It is a relation of mag- 



460 Capitalist Production. 

nitudes, a relation of principal sum, as a given value, to it- 
self as a self-expanding value, as a principal sum having 
produced a surplus-value. And we have seen that capital as- 
sumes this form of a directly self-expanding value for all in- 
vesting capitalists, whether thej work with their own or with 
a borrowed capital. 

M — M'. We have here the original starting point of 
capital, we have money in the fonnula M — C — M' reduced 
to its two extremes M — M', in which M' stands for M -}- in- 
crement of M, money creating more money. It is the primal 
and general formula of capital concentrated into a meaning- 
less summary. It is caj^ital perfected, a unity of the process 
of production and process of circulation, yielding a certain 
surplus-value in a certain period of time. In tlie form of 
interest-bearing capital this appears spontaneously without 
any intervention of the processes of production and circula- 
tion. Capital appears as a mysterious and self-creating source 
cf interest, a thing increasing itself. The Thing (money, 
commodity, value) is now capital even as a mere thing, and 
capital appears as a mere thing. The result of the entire proc- 
ess of reproduction appears as a faculty iidierent in the thing 
itself. It depends on the owner of the money, which rep- 
resents the universal exchange-form of commodities, whether 
he wants to spend it as money or loan it as capital. In the 
interest-bearing capital, therefore, this automatic fetish is 
elaborated in its pure state, it is self-expanding value, money 
generating money, and in this form it does not carry any 
more scars of its origin. The social relation is perfected into 
the relation of a thing, of money, to itself. Instead of the 
actual transformation of money into cap