Marx’s Capital Volume III – Chapter 2 – “The Rate of Profit”

~300 words, ~2 min reading time

Chapter summary

In this chapter, Marx distinguishes between the rate of profit and the rate of surplus value. In money terms, surplus value and profit are the same. But, they are different as rates. The rate of profit in Marx is the profit divided by the capital expended (including both constant and variable capital, that is non-wage expenses and wages). The rate of surplus value is the profit divided by the variable capital (the wage bill). Marx says that capitalists really only care about the rate of profit, as they don’t care what their expenditures are, exactly – they just care about the total expended. As a result, changes in the degree of exploitation (the rate of surplus value) are difficult to discern.

Why It Matters

I’m not quite sure where Marx is going with this at this point, but a point he emphasizes is that the same rate of profit may obscure significant differences in the rate of surplus value. So, for example, a firm that is capital-intensive may the same rate of profit as a labor-intensive firm. However, the rate of surplus value is higher for the capital intensive firm since it generated the same profit with a lower wage bill – so, more “surplus labor”.

Where Marx Goes Wrong

This chapter lacked theoretical substance, for the most part, so there wasn’t much wrong with it. The key problem of the labor theory of value runs through Marx, and that is no different here. If we start from the assumption of derived demand/value imputation, however, then everything turns on its head. What Marx calls “profit” is what Bohm-Bawerk identifies as “interest”. “Profit” then, is the result of capitalists delaying consumption for the money that they’ve tied up in the capitalist production process. It has nothing to do with the exploitation of labor.

1 thought on “Marx’s Capital Volume III – Chapter 2 – “The Rate of Profit””

  1. Professor Engelhardt,

    In terms of why he emphasizes a difference in rate of surplus-value versus rate of profit, is because, at least in Marx’s reading, Ricardo identifies both of them (in words although, in the structure of his argument, he often thinks – this is the controversy over gross vs net (neat) revenue)). The identification that Ricardo does, reflects a different standpoint than the foundation of bourgeois society (it reflects an estrangement in fact, which is not the same thing as alienation, which was a positive and is not what Marx talks about in the 1844 manuscripts).

    Smith was better and in book of Wealth of Nations, follows how there could be changed conditions which would change what was considered “productive” labor (Smith takes two different views throughout the Wealth of Nations and it reflects the intermediary historical position in co-operation to Manufacturing).
    The relationship between the rate of surplus-value and the rate of profit, has an inner and dynamic relation. It is not as simple a mere algebraic s/v versus s/v+c; rather, it expresses a difference in historical period (bourgeois relations versus industrial society).

    Surplus-value is a bourgoeis desiderata – it is an expression of our freedom, of our ability to transform ourselves, “production for production’s sake” – the openendness of modern society, that we can produce new needs and transform what it means to be human.

    So the transformation is important:

    Secondly, in this chapter:

    “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. ”

    – This is an historical statement. In other words, from the basis of bourgeois right, the development of a ratio between present and past. This distinction, this historical distinction, was not made by Ricardo and Smith and actually reflects a historical difference between their time and Marx’s.

    It is a demonstration that the **means** to the **ends** of bourgeois society – Freedom – have been reversed.
    In fact, it would be great if we had “production for production’s sake” – Freedom!

    Marx’s point is we don’t even have production for profit sake! For that could be justified – all of the standard justifications for profit – that it is supposed to facilitate the development of production, of freedom, to meet our highest valued needs, etc. – is all fine.

    The issue is not that it is some sort of moral wrong but rather, it is not even true – that’s why I keep calling emphasis to constant capital. Profit helps explain the motives of the entrepreneurs – no doubt; and if we use Profit as a praxeological category, than it can explain everyone’s motives (to reach a better state, to remove tension, etc). But it is more the way that they get roped into a larger social crisis. Capitalism, for Marx, was a crisis at the “macro” level, not one of unjustness (the feeling of which, rather is expression of Capital’s undermining of bourgeois right!). I want to call early attention to Marx’ points about Ricardo’s “ambivalence” in chapter 15.

    One of the more interesting things, that hopefully you will get to (it is chapter 29!), is that the production process begins to look like interest! And the reason for that is in that section.

    One of the issues with conceiving of profit as interest is that if I contract to lend you 100 dollars at a 5% interest, by contract you are required to at least pay me the nominal value (so inflation might destroy the real value but the nominal value is required). But such a contract is not made between a worker and capitalist and I believe that is even acknowledged by critics of Marx, because they recognize the risk an entrepreneur makes.

    In other words, the profit is not in contract- this is exactly what Von Mises criticizes Marx for (in Human Action but elsewhere as well), that capital does not “beget” profit because the entrepreneur still has to speculate on the economy and that is why I think it is more appropriate when Mises describes profit as arbitrage.

    But that would still not be interest. Now, perhaps you might say “well, if I lend money to someone, I am not guaranteed the real value of the contract.”

    Sure – but it is still not the same contract. Otherwise, we can all stop working and just grow the economy by lending to each other and paying the principle + interest when the loan is mature.

    The reason that Marx links to this view of the economy is because interest-bearing capital, becomes a condition for the employment of other capital (it is actually a higher-form expression of wage-labor and capital). So it seems to be the cause – a classic reversal of means and ends.

    Bohm-Bawerk’s motivation for demonstrating that the worker is not exploited but rather exchanges with the Capitalist is to show the validity and justness of the exchange relation.

    Karl Marx agrees that it is a valid and just relation – furthermore, his whole point is that the capitalist ****does NOT*** steal from the worker. Unpaid labor rather reflects excess, an overproduction of property, rather than the exploitation of one individual against another.

    In fact, the contract, to paraphrase Marx, is based on time. They exchange time – the issue is that such contract has become obsolete to the development of society’s productive forces. Hence, the basis upon which it arose – labor – seems to note describe things!

    Its almost as if the point is that the *Labor Theory of Value Does Not Hold.*

    Secondly, the “exploitation” is not dependent on working for someone. If the entire economy was made of self-owned businesses, then people just “exploit” themselves. This is the classic critique of Proudhon. Meaning, if it is interest, do they lend to themselves?

    It is not the capitalist that exploits the workers but rather society – meaning people actually exploit themselves! (please say this to socialists and Marxists you may encounter in scholarly debates – or even online ones!)

    If it was just something the capitalists did to the workers, then socialism is unnecessary. It would just be a crime but the necessity socialism actually arises from the inability of labor as value, Bourgeois Right, to capture the potential in society – i.e. all the “critics” of Marx sort of prove the point.

Leave a Reply

Your email address will not be published. Required fields are marked *