1930s >> 1932 >> no-331-march-1932

A Canadian reader asks us to explain the relation between the Marxian “Price of Production” and the Labour Theory of Value. Another reader sends us for review “Karl Marx on Value,” by J. W. Scott (pub., A. & C. Black, Ltd., 1920), in which the author claims to expose a contradiction in the Marxian view.

In “Value, Price, and Profit,” Chap. VI, Marx states :—

“As a general law we may therefore set it down that the values of commodities are directly as the times of labour employed in their production, and are inversely as the productive powers of the labour employed.”

The Labour Theory of Value amounts to this : a commodity (that is, an article produced for sale) has a value, which expresses itself in exchange with other commodities. This value is determined by the labour-time necessary to produce the commodity. The price of the commodity is the money form of its exchange value. If an article is priced at £1, it is because the article and the metal in the sovereign are both representations of equal amounts of simple labour-time. In practice, an article is rarely sold at its value; it is generally higher or lower, owing partly to supply and demand, and partly to other factors. Taking the whole field of production, these variations cancel each other.

The value of an article is the basis of its price, and this is true of labour-power as of other commodities. Labour-power is sold to the employer, its value being the cost of the workers’ food, clothing, etc. It remains to show how the capitalist makes his profit if he sells the workers’ products on the average at their value, and buys the workers’ labour-power at its value. The profit arises from the fact that the workers are able to produce a value greater than the cost of maintaining themselves. The employing class retain this surplus-value.

The supposed contradiction lies in the following statement which the critics of Marx believe to be incompatible with the Labour Theory of Value.

In Vol. III of “Capital” we find Marx writing :—

“The price ot production o! a comrnody, then, is equal to its cost price plus a percentage of profit apportioned according to the average rate of profit, or in other words, equal to its cost price, plus the average profit.” (Kerr Edition, p. 186.)

It is ihis seeming contradiction between Vol III and other writings that Scott uses in order to tilt at Marx. Scott states :—

“It is not suggested here thai labour has nothing to do with the creation of value. That would be an absurd statement. The suggestion is that Marx is wrong when he says that it is the entire and only cause. We insist that if value came from labour alone, it would vary with it. It does not do so. And there seems to be no reply to this except a surrender of Marx’s principles.” (p. 17)

Elsewhere Scott states :—

“It is a commonplace of political economy that under the competitive system things tend to fetch a price margin above their cost of production. Marx does not attempt to deny this. Yet his system is built on the assumption that things fetch a price proportional to the labour-time that is in them. The difficulty about having both these statements correct is that thev are not compatible with one another.” (p. 23.)

What is the explanation of this alleged contradiction ?

Marx divides the capital spent in the production oi commodities into two parts: —

(1) That part spent upon raw material, machinery, and accessories, and which he termed “constant” capital, in the sense that its value remains constant.

(2) That part spent upon buying labour-power and which he termed “variable,” in the sense that its value varies in the process, because the workers can produce values greater than the value of their labour-power.

Let us suppose that the capitalist buys raw material which, with the wear and tear of his machinery, is equal to 80,000 hours of labour-time. Now let us suppose thai he buys labour-power which is expended in 10,000 hours in working the raw material up into the finished product. We then have products valued at 120,000 hours of labour-time. Yet the workers whose labour-power was expended in 40,000 hours would receive as wages only the equivalent of, say, 20,000 hours, leaving the other 20,000 as a gift to the capitalist—profit, interest, etc. Such is the reality of capitalist production. Now let us look at its appearance.

The capitalist does not think in terms of labour-time, but in terms of money. Let us suppose that 10 hours of labour-time is equal in value to £1. He will then spend £8,000 on the raw material and wear and tear of his machinery (constant capital), and £2,000 on labour-power (variable capital). The capital advanced is £10,000, and is known as Cost of Production. If the average rate of profit over the whole field of production, as determined by the forces of competition, is, let us say, 20 per cent., he adds £2,000 to his Cost of Production, making the total Price of Production £12,000, and the finished product a fraction of this. This Production Price is the point about which the Market Price fluctuates according to the conditions that prevail in the market.

It must, then, not be assumed that products are always sold exactly at their value. As Marx says : —

“The assumption thatthe commodities of the various spheres of production are sold at their value implies, of course, only that their value is the centre oi gravity around which prices fluctuate, and around which their rise aud fall tends to an equilibrium”. (“Capital,” Vol. III, p. 210.)

There are some commodities which are always sold above their value; there are others, e. g., some agricultural products, which are always sold below. To understand this we must consider what Marx termed the “organic” composition of capital,i. e., relationship between “constant” and “variable” quantities. That in which the “constant” is large proportionate to the “variable,” Marx termed capital of “high organic composition”; that in which the “constant” is small compared with the “variable,” Marx termed capital of “low organic composition.” The tendency of capitalist development is to spend a greater part of the outlay on “constant capital and less on the “variable.” The following table will show capitals in three diilerent stages ol organic composition, A being- the lowest, C the highest :

	C.	V.	S.	Value of Product	P.
A	70	30	30	130	30%
B	80	20	20	120	20%
C	90	10	10	110	10%

We are assuming, for the sake of simplicity, that the rate of exploitation is 100 per cent., that is, the labour-power creates a surplus equal to its own value, and the capital in each case (constant plus variable) is 100, C being constant and V variable, S being the surplus and P the rate of profit. The value of the finished product in “A” sphere would be 130; in “B,” 120; in “C,” 110: making profits of 30 per cent., 20 per cent., and 10 per cent. The average of these profits is 20 per cent. The Cost of Production (constant plus variable) is the same in each sphere, that is, 100. The Price of Production of each product, then, is Cost of Production, 100, plus Average Rate of Profit, 20. Total, 120. The products of sphere A, then, are sold at 10 below their value, which is counterbalanced by those in sphere C being sold at 10 above their value. From this we can deduce the following : Those spheres of production in which the “organic” composition of capital is high tend to sell their products above their value, and those spheres in which the “organic” composition is low lend to sell their products below their value.

Products are sold, not merely as products of labour-power, but as products of capital, and, as Marx states: —

“A capitalist selling his commodities at their price of production recovers money in proportion to thr value of the capital consumed in their production and secures profits in proportion 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 invested capital.” (Vol. III, p. 187.)

While one commodity receives less than the average of surplus-value, another receives more than the average, and these deviations 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 ascertainahle average of ceaseless fluctuations.” (Vol. III, p. 190.)

Now one further point for Professsor Scott and other critics who believe that the third volume of “Capital” presents a theory not compatible with the first volume and not perceived by Marx when he published the first \olume.

On page 293 of Vol. I (Sonnensehein Hdition) we read Marx’s own statement of the apparent contradiction, his promise to deal with it later, and his reasons for delaying that treatment : —

“….. the masses of value and of surplus value produced by different capitals—the value of labouyr power being given and its degree of exploitation being equal—vary directly as the amounts of the variable constituents of these capitals, i.e., as their constituents transformed inio living labour-power.
This law clearly contradicts all experience based on appearance. Everyone knows that a cotton spinner who, reckoning the percentage on the whole of his applied capital, employs much constant and little variable capital, does not, on account of this, pocket less profit or surplus vaiue than a baker, who relatively sets in motion much variable and little constant capital. For the solution of this apparent contradiction, many intermediate terms are as yet wanted….. It will be seen later how the school of Ricardo has come to grief over this stumbling-block. Vulgar economy which, indeed, ‘has really learnt nothing,’ here as everywhere sticks to appearances in opposition to the law which regulates and explains them. In opposition to Spinoza, it believes that ‘ignorance is a sufficient reason.’”

H. C.