~420 words, ~3 min reading time


In this chapter, Marx considers the effects of variations in various prices on the rate of profit. First, raw materials. As one might expect, there is an inverse relationship between raw material prices and the rate of profit. Thus, low material prices are important to capitalists maintaining profit levels. Marx explains that this is true, even though changes in the prices of raw materials tend to be reflected in the price of the product. Because of competition, the change in cost is typically not fully reflected in the price of the final good. In the case of wages, higher wages tend to decrease both the rate of surplus value (which decreases the rate of profit), and also tend to decrease the capitalist’s scope of production – further decreasing profit. One of the more interesting observations Marx makes in this chapter is that there is a tendency in capitalism for the growth of the stock of machinery to run ahead of the ability of nature to produce nature-given factors (like agricultural goods, for example), and this creates imbalances that lead to cyclical fluctuations. Marx specifically considers cotton markets, showing how there was a repeated boom and bust in that industry in England through the mid-1800s.

Why It Matters

In this chapter, Marx hints that a good part of the instability of the capitalist system that he will explain later rests on the relationship between the prices of the factors of production and the rate of profit.

Where Marx Goes Wrong

From a modern mainstream or Austrian perspective, Marx’s analysis here isn’t “wrong” in one sense – but is wrong in another. On the one hand, from an individual firm’s perspective, Marx’s analysis of the effect of prices of factors on the rate of profit is fairly sound. But, from the perspective of the economy as a whole, we have the problem that the prices of factors of production are not exogenous. They depend on the (expected) price of the product. Value is then imputed back from the product to the factors that produce it. In mainstream terms, the demand for the factors of production is “derived” from the demand for the product. So, the causal analysis, if we’re trying to analyze the system as a whole, is backwards – UNLESS we’re considering cases where the price is changing because of a change in availability of the goods under consideration, but Marx isn’t very clear about that (though there are certainly places where he considers these cases).

One thought on “Marx”

  1. Professor Engelhardt,

    I watched your talk on MMT – I thought it was very good and I thought to myself that MMT must be “Bonapartist Realism.”

    I think the chapter is more focused on the effect of fluctuation in prices on inputs, then on the finished good (which will be referred to as “commodity capital” given a circuit). In the latter case, the change in demand would completely affect the value (not-)reproduced (more on this below).

    The reason for this focus is that Marx is focused on the interdependence of capital, that production already is socialized. No doubt one could say that a change in prices has always affected production but here we are talking about the conditions of production and labor productivity growing at different rates.

    “Further, the quantity and value of the employed machinery grows with the development of labour productivity but not in the same proportion as this productivity, i. e., not in the proportion in which this machinery increases its output.”

    This, in a subtle way, gets to the contradiction. In other words, the development of direct labor-productivity was the basis for bourgeois social relations (what Marx refers to as the “relations of production”) but the industrial society created a new kind of productive capacity. The increase in the value disproportionately to the development of labor productivity actually expresses that the development of human freedom is no longer coming through the real development of labor but rather the general potential of humanity and this is often embodied in the conditions that are granted for entrepreneurial skill (why are they related to in such a way? Because our contracting in civil society, our voluntary cooperation, is based on relating to each other as property owners, as *laborers*). And so this is why this disproportion ends up setting a limit for itself (he is setting it up for the coming chapters). This is why it is not a question of the exploitation of the worker – which could be justified as raising the general possibilities and capacities of humanity – but rather the inability for us to realize our own self-exploitation (and also the need to free machines from us – from relating to us as “labor”).

    This is an expression of *historical* discontinuity – the development of the productive powers of labor (sometimes referred to as direct labor-time) and the development of the productive potential as a whole (the social power “capitalized,” to quote Marx). The non-identity between surplus-value and profit rate is another expression of this – and why it is crucial for Marx that Ricardo identifies both (that is an expression of reification).

    In terms of this chapter, the most immediate question that could be raised is whether or not Capital is a use-value.

    For Marx, there is a dialectic between use-value and exchange-value: meaning, they are inseparable but not identical.

    The formation of exchange-value emerged out of the production of use-values (through barter, through indirect exchange, etc). Through exchange emerges money (I know you know this) and exchange-value becomes a use for individuals in a society based on exchange for production (a working division of labor, exchange, property rights). Uses gain an exchange-value, that might be non-identical with their particular value (i.e. a specific pair of Nike shoes compared to the market-price).

    Let me give an example:

    I am picking apples. I find a stick that allows me to pick more apples. The value of the stick, is as a means to the end of picking apples. I then don’t like apples anymore and no matter how productive that stick is, its value goes to zero.

    Now, let me sell those apples. I decided I hate apples. I go to the market, I sell the apples. The value is imputed back to the stick. I continuing producing and I get very good at producing apples.

    But already there is a difference from the first case.

    Such exchange, presupposes property. It is not the same thing as possession – why?

    Animals can possess. Put a bone down and animals will fight for possession. But they do not have property rights.

    Property is produced by humans. It is the only “human right” as Murray Rothbard says in “Power and Market.” As Rothbard puts in Chapter 1 of Man, Economy and State, all property can be traced back to labor and nature (this is of course a restatement of Locke, who like a good bourgeois revolutionary, attacked the traditional descendant view of property in his first treatise). But acting man, thinks into the future. Correct.

    So what happens in production? We produce property.

    Before even a number, a price, property presupposes a qualitative homogeneity – I can say that 6 is greater than 5 but I cannot say 6 is greater than red. They do not belong to the same “set.”

    What is the homogeniety that sets the condition for the quantitative inequality? We relate as humans. We as producers to each other. We relate as property owners – for that property, is either the result of our production or the result of exchange. New Property, by definition, cannot exist through the act of exchange.

    We, as consumers, want the entrepreneurs to feel the fact that they have overproduced – therefore, we want them to feel that the difference between what was realized and what was produced. Profit and Loss.

    But this is why value cannot be reduced to demand. Otherwise, it would the cost the entrepreneurs nothing. Property would be produced by exchange, which is rather the interchange of ownership and presupposes, property. Industrial production, for Marx, “bursts the fetters” of the relations that gave rise to the production – Industrial production negates Bourgeois Society.

    What I am trying to get at is that imputation can reflect many different circumstances. In the first case, it reflected the value of the stick to me – it says nothing about whether property exists at all. In the second case, it reflected the value of the product to the consumer. If I overproduce, some of the output is useless. What happens when there is an overabundance of something? Its price falls. In fact, its value might go to zero – no one finds it useful. It goes to nothing – it is actually the destruction of property. Marx’s point is not that property is bad but that the crisis of bourgeois society, that Marxists (not him) called Capital-ism, is the overproduction of Bourgeois Property (Bourgeois Right), in particular, that of labor-power (Capitalism is NOT identical with Bourgeois Society – hence, the orthodox contradiction between *forces* of production – industrial – and *relations* of production – bourgeois right).

    So that what has “value” is that which has a demand to meet it, might actually reflect a multitude of different situations – it might reflect non-property state of nature, it might reflect the overproduction of property in society. I would say that Subjective Value is the adequate expression of Capitalist Production – because we have an overproduction of property.

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