Grundrisse: Notebook VII – Capital as Fructiferous. Transformation of Surplus Value into Profit

We now come to the

THIRD SECTION. CAPITAL AS FRUCTIFEROUS. INTEREST. PROFIT. (PRODUCTION COSTS ETC.)

Rate of profit. – Fall of the rate of profit. – Rate of profit. – Sum of profit. – Atkinson. A. Smith. Ramsay. Ricardo. – Surplus value as profit always expresses a lesser proportion. – Wakefield. Carey. Bastiat

Capital is now posited as the unity of production and circulation; and the surplus value it creates in a given period of time, e.g. in one year, is = ST/(p + c) = ST/R or = S(T/p - T/p × c/(c + p)). Capital is now realized not only as value which reproduces itself and is hence perennial, but also as value which posits value. Through the absorption of living labour time and through the movement of its own circulation (in which the movement of exchange is posited as its own, as the inherent process of objectified labour), it relates to itself as positing new value, as producer of value. It relates as the foundation to surplus value as that which it founded. Its movement consists of relating to itself, while it produces itself, at the same time as the foundation of what it has founded, as value presupposed to itself as surplus value, or to the surplus value as posited by it. In a definite period of time which is posited as the unit measure of its turnovers because it is the natural measure of its reproduction in agriculture, capital produces a definite surplus value, which is determined not only by the surplus value it posits in one production process, but rather by the number of repetitions of the production process, or of its reproductions in a specified period of time. Because of the inclusion of circulation, of its movement outside the immediate production process, within the reproduction process, surplus value appears no longer to be posited by its simple, direct relation to living labour; this relation appears, rather, as merely a moment of its total movement. Proceeding from itself as the active subject, the subject of the process – and, in the turnover, the direct production process indeed appears determined by its movement as capital, independent of its relation to labour – capital relates to itself as self-increasing value; i.e. it relates to surplus value as something posited and founded by it; it relates as well-spring of production, to itself as product; it relates as producing value to itself as produced value. It therefore no longer measures the newly produced value by its real measure, the relation of surplus labour to necessary labour, but rather by itself as its presupposition. A capital of a certain value produces in a certain period of time a certain surplus value. Surplus value thus measured by the value of the presupposed capital, capital thus posited as self-realizing value – is profit; regarded not sub specie aeternitatis, but sub specie – capitalis, the surplus value is profit; and capital as capital, the producing and reproducing value, distinguishes itself within itself from itself as profit, the newly produced value. The product of capital is profit. The magnitude, surplus value, is therefore measured by the value-magnitude of the capital, and the rate of profit is therefore determined by the proportion between its value and the value of capital. A very large part of what belongs here has been developed above.  But the anticipated material is to be put here. In so far as the newly posited value, which is of the same nature as the capital, is itself in turn taken up into the production process, itself in turn maintains itself as capital, to that extent the capital itself has grown, and now acts as a capital of greater value. After it has distinguished the profit, as newly reproduced value, from itself as presupposed, self-realizing value, and has posited profit as the measure of its realization, it suspends the separation again, and posits it in its identity to itself as capital which, grown by the amount of the profit, now begins the same process anew in larger dimensions. By describing its circle it expands itself as the subject of the circle and thus describes a self-expanding circle, a spiral.

The general laws developed previously here briefly summarized thus: The real surplus value is determined by the relation of surplus labour to necessary labour, or by the portion of the capital, the portion of objectified labour, which exchanges for living labour, relative to the portion of objectified labour by which it is replaced. But surplus value in the form of profit is measured by the total value of the capital presupposed to the production process. Presupposing the same surplus value, the same surplus labour in proportion to necessary labour, then, the rate of profit depends on the relation between the part of capital exchanged for living labour and the part existing in the form of raw material and means of production. Hence, the smaller the portion exchanged for living labour becomes, the smaller becomes the rate of profit. Thus, in the same proportion as capital takes up a larger place as capital in the production process relative to immediate labour, i.e. the more the relative surplus value grows – the value-creating power of capital – the more does the rate of profit fall. We have seen that the magnitude of the capital already presupposed, presupposed to reproduction, is specifically expressed in the growth of fixed capital, as the produced productive force, objectified labour endowed with apparent life. The total value of the producing capital will express itself in each of its portions as a diminished proportion of the capital exchanged for living labour relative to the part of capital existing as constant value. Take e.g. manufacturing industry. In the same proportion as fixed capital grows here, machinery etc., the part of capital existing in raw materials must grow, while the part exchanged for living labour decreases. Hence, the rate of profit falls relative to the total value of the capital presupposed to production – and of the part of capital acting as capital in production. The wider the existence already achieved by capital, the narrower the relation of newly created value to presupposed value (reproduced value). Presupposing equal surplus value, i.e. equal relation of surplus labour and necessary labour, there can therefore be an unequal profit, and it must be unequal relative to the size of the capitals. The rate of profit can rise although real surplus value falls. Indeed, the capital can grow and the rate of profit can grow in the same relation if the relation of the part of capital presupposed as value and existing in the form of raw materials and fixed capital rises at an equal rate relative to the part of the capital exchanged for living labour. But this equality of rates presupposes growth of the capital without growth and development of the productive power of labour. One presupposition suspends the other. This contradicts the law of the development of capital, and especially of the development of fixed capital. Such a progression can take place only at stages where the mode of production of capital is not yet adequate to it, or in spheres of production where it has assumed predominance only formally, e.g. in agriculture. Here, natural fertility of the soil can act like an increase of fixed capital – i.e. relative surplus labour can grow – without the amount of necessary labour diminishing. (E.g. in the United States.) The gross profit, i.e. the surplus value, regarded apart from its formal relation, not as a proportion but rather as a simple magnitude of value without connection with any other, will grow on the average not as does the rate of profit, but as does the size of the capital. Thus, while the rate of profit will be inversely related to the value of the capital, the sum of profit will be directly related to it. However, even this statement is true only for a restricted stage of the development of the productive power of capital or of labour. A capital of 100 with a profit of 10% yields a smaller sum of profit than a capital of 1,000 with a profit of 2%. In the first case the sum is 10, in the second 20, i.e. the gross profit of the larger capital is twice as large as that of the 10 times smaller capital, although the rate of the smaller capital’s profit is 5 times greater than that of the larger. But if the larger capital’s profit were only 1%, then the sum of its profit would be 10, like that for the 10 times smaller capital, because the rate of profit would have declined in the same relation as its size. If the rate of profit of the capital of 1,000 were only 1/2%, then the sum of its profit would be only half as large as that of the smaller capital, only 5, because the rate of profit would be 20 times smaller. Thus, expressed in general terms: if the rate of profit declines for the larger capital, but not in relation with its size, then the gross profit rises although the rate of profit declines. If the profit rate declines relative to its size, then the gross profit remains the same as that of the smaller capital; remains stationary. If the profit rate declines more than its size increases, then the gross profit of the larger capital decreases relative to the smaller one in proportion as its rate of profit declines. This is in every respect the most important law of modern political economy, and the most essential for understanding the most difficult relations. It is the most important law from the historical standpoint. It is a law which, despite its simplicity, has never before been grasped and, even less, consciously articulated. Since this decline in the rate of profit is identical in meaning (1) with the productive power already produced, and the foundation formed by it for new production; this simultaneously presupposing an enormous development of scientific powers; (2) with the decline of the part of the capital already produced which must be exchanged for immediate labour, i.e. with the decline in the immediate labour required for the reproduction of an immense value, expressing itself in a great mass of products, great mass of products with low prices, because the total sum of prices is = to the reproduced capital + profit; (3) [with] the dimension of capital generally, including the portion of it which is not fixed capital; hence intercourse on a magnificent scale, immense sum of exchange operations, large size of the market and all-sidedness of simultaneous labour; means of communication etc., presence of the necessary consumption fund to undertake this gigantic process (workers’ food, housing etc.); hence it is evident that the material productive power already present, already worked out, existing in the form of fixed capital, together with the population etc., in short all conditions of wealth, that the greatest conditions for the reproduction of wealth, i.e. the abundant development of the social individual – that the development of the productive forces brought about by the historical development of capital itself, when it reaches a certain point, suspends the self-realization of capital, instead of positing it. Beyond a certain point, the development of the powers of production becomes a barrier for capital; hence the capital relation a barrier for the development of the productive powers of labour. When it has reached this point, capital, i.e. wage labour, enters into the same relation towards the development of social wealth and of the forces of production as the guild system, serfdom, slavery, and is necessarily stripped off as a fetter. The last form of servitude assumed by human activity, that of wage labour on one side, capital on the other, is thereby cast off like a skin, and this casting-off itself is the result of the mode of production corresponding to capital; the material and mental conditions of the negation of wage labour and of capital, themselves already the negation of earlier forms of unfree social production, are themselves results of its production process. The growing incompatibility between the productive development of society and its hitherto existing relations of production expresses itself in bitter contradictions, crises, spasms. The violent destruction of capital not by relations external to it, but rather as a condition of its self-preservation, is the most striking form in which advice is given it to be gone and to give room to a higher state of social production. It is not only the growth of scientific power, but the measure in which it is already posited as fixed capital, the scope and width in which it is realized and has conquered the totality of production. It is, likewise, the development of the population etc., in short, of all moments of production; in that the productive power of labour, like the application of machinery, is related to the population; whose growth in and for itself already the presupposition as well as the result of the growth of the use values to be reproduced and hence also to be consumed. Since this decline of profit signifies the same as the decrease of immediate labour relative to the size of the objectified labour which it reproduces and newly posits, capital will attempt every means of checking the smallness of the relation of living labour to the size of the capital generally, hence also of the surplus value, if expressed as profit, relative to the presupposed capital, by reducing the allotment made to necessary labour and by still more expanding the quantity of surplus labour with regard to the whole labour employed. Hence the highest development of productive power together with the greatest expansion of existing wealth will coincide with depreciation of capital, degradation of the labourer, and a most straitened exhaustion of his vital powers. These contradictions lead to explosions, cataclysms, crises, in which by momentaneous suspension of labour and annihilation of a great portion of capital the latter is violently reduced to the point where it can go on. These contradictions, of course, lead to explosions, crises, in which momentary suspension of all labour and annihilation of a great part of the capital violently lead it back to the point where it is enabled [to go on] fully employing its productive powers without committing suicide. Yet, these regularly recurring catastrophes lead to their repetition on a higher scale, and finally to its violent overthrow. There are moments in the developed movement of capital which delay this movement other than by crises; such as e.g. the constant devaluation of a part of the existing capital: the transformation of a great part of capital into fixed capital which does not serve as agency of direct production; unproductive waste of a great portion of capital etc. (Productively employed capital is always replaced doubly, as we have seen, in that the positing of value by a productive capital presupposes a counter-value. The unproductive consumption of capital replaces it on one side, annihilates it on the other.  That the fall of the rate of profit can further be delayed by the omission of existing deductions from profit, e.g. by a lowering of taxes, reduction of ground rent etc., is actually not our concern here, although of importance in practice, for these are themselves portions of the profit under another name, and are appropriated by persons other than the capitalists themselves.  The fall [in the rate of profit] likewise delayed by creation of new branches of production in which more direct labour in relation to capital is needed, or where the productive power of labour is not yet developed, i.e. the productive power of capital.) (Likewise, monopolies.) ‘Profit is a term signifying the increase of capital or wealth; so failing to find the laws which govern the rate of profit, is failing to find the laws of the formation of capital.’ (William Atkinson, Principles of Political Economy etc., London, 1840, p. 55.) He has however failed to understand even what the rate of profit is. A. Smith explained the fall of the rate of profit, as capital grows, by the competition among capitals. To which Ricardo replied that competition can indeed reduce profits in the various branches of business to an average level, can equalize the rate, but cannot depress this average rate itself. A. Smith’s phrase is correct to the extent that only in competition – the action of capital upon capital – are the inherent laws of capital, its tendencies, realized. But it is false in the sense in which he understands it, as if competition imposed laws on capital from the outside, laws not its own. Competition can permanently depress the rate of profit in all branches of industry, i.e. the average rate of profit, only if and in so far as a general and permanent fall of the rate of profit, having the force of a law, is conceivable prior to competition and regardless of competition. Competition executes the inner laws of capital; makes them into compulsory laws towards the individual capital, but it does not invent them. It realizes them. To try to explain them simply as results of competition therefore means to concede that one does not understand them. Ricardo, for his part, says: ‘No accumulation of capitals can permanently reduce profits unless an equally permanent cause raises wages.’ (p. 92, tome II, Paris 1835, translated by Constancio.) He finds this cause in the growing, relatively growing unproductivity of agriculture, ‘the growing difficulty of increasing the quantity of subsistence’, i.e. in the growth of proportionate wages, so that labour’s real wage is no greater, but the product obtains more labour; in a word, a greater portion of necessary labour is required for the production of agricultural products. The falling rate of profit hence corresponds, with him, to the nominal growth of wages and real growth of ground rent. His one-sided mode of conceiving it, which seizes on only one single case, just as the rate of profit can fall because wages momentarily rise etc., and which elevates a historical relation holding for a period of 50 years and reversed in the following 50 years to the level of a general law, and rests generally on the historical disproportion between the developments of industry and agriculture – in and for itself it was strange that Ricardo, Malthus, etc. constructed general and eternal laws about physiological chemistry at a time where the latter hardly existed – this method that Ricardo has of conceiving the matter has therefore been attacked from all sides, partly because of an instinct that it is wrong and unsatisfactory; but mostly for its true rather than for its false aspects.

The same law expresses itself simply – but this expression to be looked at later in the theory of population – as the relation of the growth of population – namely its labouring part – to the capital already presupposed.

The other way in which this same law also expresses itself, in the relation among many capitals, i.e. in competition, likewise belongs in another section. It can also be formulated as a law of the accumulation of capitals; as e.g. by Fullarton. We shall come to this in the next section. It is important to call attention to the point that this law deals not simply with the development of productive power δυνάμει, but at the same time with the scope in which this productive power acts as capital, and is realized as fixed capital above all in one respect, and as population in the other.

‘A. Smith thought that accumulation or increase of stock in general lowered the rate of profits in general, on the same principle which makes the increase of stock in any particular trade lower the profits of that trade. But such increase of stock in a particular trade means an increase in a greater proportion than stock is at the same time increased in other trades. It is relative.’ (p. 9, An Inquiry into those Principles respecting the Nature of Demand and the Necessity of Consumption, lately advocated by Mr Malthus. London, 1821.) ‘The competition among the industrial capitalists can level profits which rise particularly above the level, but cannot lower this ordinary level.’ (Ramsay, IX, 88.)  (Ramsay and other economists correctly distinguish between whether productivity grows in the branches of industry which make fixed capital, and naturally wages, or in other industries, e.g. luxury-goods industries. The latter cannot diminish necessary labour time. This they can do only through exchange for agricultural products of other countries, which is then the same as if productivity had increased in agriculture. Hence the importance of free trade in grain for the industrial capitalists.) Ricardo says (English edition On the Principles of Political Economy and Taxation. 3rd edition, London, 1821): ‘The farmer and manufacturer can no more live without profits, than the labourer without wages.’ (p. 23 loc. cit.) ‘There is a natural tendency for profits to fall, because in the progress of society and of wealth, the additional food requires more and more labour. This tendency, this gravitation of profits, is delayed in repeated intervals by improvement of the machinery involved in the production of necessaries, as well as by discoveries in the science of agriculture, which reduce the costs of production.’ (loc. cit. p. 121.) Ricardo at once identifies profit directly with surplus value; he did not make this distinction at all. But whereas the rate of surplus value is determined by the relation of surplus labour employed by the capital to necessary labour, the rate of profit is nothing but the relation of the surplus value to the total value of the capital presupposed to production. Its proportion falls and rises, hence, in relation with the part of the capital exchanged for living labour relative to the part existing as material and fixed capital. Under ALL circumstances, the surplus value regarded as profit must express a smaller proportion of the gain than the real proportion of the surplus value. For, under all circumstances, it is measured by the total capital, which is always larger than that employed for wages and exchanged for living labour. Since Ricardo simply mixes surplus value and profit together in this way, and since the surplus value can constantly decline, can tendentially decline only if the relation of surplus labour to necessary labour, i.e. to the labour required for the reproduction of labouring capacity, declines, but since the latter is possible only if the productive force of labour declines, Ricardo assumes that the productive force of labour decreases in agriculture, although it grows in industry, with the accumulation of capital. He flees from economics to seek refuge in organic chemistry. We have demonstrated the necessity of this tendency without any reference to ground rent, nor did we have to refer e.g. to rising demand for labour etc. The connection between ground rent and profit is to be treated only in the examination of ground rent itself, does not belong here. But modern chemistry has demonstrated that Ricardo’s physiological postulate, expressed as a general law, is false.  As for Ricardo’s disciples, in so far as they are more than his pious echoes, they have quietly let drop whatever is unpleasant to them in their master’s principles, as has the newer economics generally. To drop the problem is their general method of solving it. Other economists, such as e.g. Wakefield, seek refuge in the examination of the field of employment for the growing capital. This belongs in the examination of competition, and is rather the difficulty for capital to realize the growing profit, hence denial of the inherent tendency towards the fall of the rate of profit. But the need for capital to seek a constantly more extensive field of employment is itself again a consequence. One cannot count Wakefield and similar people among those who have posed the question itself. (Is in certain respects a reproduction of A. Smith’s view.) Finally, the harmonists among the most modern economists, at their head the American, Carey, whose most obnoxious adherent was the Frenchman Bastiat (by the way, it is the nicest irony of history that the Continental free-traders worship Mr Bastiat, who, for his part, gets his wisdom from the protectionist, Carey), accept the fact of the tendency of the rate of profit to fall in measure as productive capital grows. But they explain it simply and entirely as due to growth in the value of labour’s share; growth of the proportion of the total product obtained by the worker, while the capital is allegedly compensated for this by the growth of gross profits. The unpleasant contradictions, antagonisms within which classical economics moves, and which Ricardo emphasizes with scientific ruthlessness, are thus watered down into well-to-do harmonies. In Carey’s development, it sometimes seems as if he still had a mind of his own. This concerns a law which we need look at only in the doctrine of competition, where we will then settle accounts with him. We can finish up here with the witlessness of Bastiat, who expresses commonplaces in a paradoxical way, grinds and polishes them into facets, and hides an utter poverty of ideas under a cover of formal logic.In the Gratuité du Crédit. Discussion entre M. Fr. Bastiat et M. Proudhon, Paris, 1850 (Proudhon, by the way, cuts a highly ridiculous figure in this polemic, where he hides his dialectical feebleness under a great show of rhetoric), it says in Bastiat’s letter No. VIII (where this noble spirit, by the way, simply transforms, with his conciliatory dialectic, the gain resulting from the simple division of labour both for the road-builder and for the road-user into a gain owed to the ‘road’ (i.e. to capital) itself): ‘To the degree that capitals increase (and the products with them), the absolute part returning to capital increases, and its proportional part diminishes. To the degree that capitals increase (and the products with them), labour’s proportional part and its absolute part increase … Since capital’s absolute part grows even while it successively obtains only 1/2, 1/3, 1/4, 1/5 of the total product, it follows that labour, which successively obtains 1/2, 2/3, 3/4, 4/5, evidently receives a progressively increasing share of the whole, both in the proportional and in the absolute sense.’ He gives as illustration:

Total product Capital’s shareLabour’s share1st period 1,000 1/2 or 500 1/2 or 500

2nd 1,800 1/3 or 600 2/3 or 1,200

3rd 2,800 1/4 or 700 3/4 or 2,100

4th 4,000 1/5 or 800 4/5 or 3,200

(p. 130, 131.)

Some things from Notebook III about the antithesis of Carey and Bastiat can be included at this point. 

The same joke is repeated (p. 288) in the form of increasing gross profit with declining rate of profit, but increasing mass of products sold at lower prices, and weighty words are spoken on that occasion about ‘the law of unlimited decline which never reaches zero, a law well known to mathematicians’. (p. 288.) ‘Here we have’ (hawking his wares) ‘an endlessly decreasing multiplier, because the multiplicand is ever growing.’ (p. 288 loc. cit.)

Ricardo had anticipated his Bastiat. Emphasizing that the sum of profit grows as capital grows despite the decline of the rate of profit – thus anticipating Bastiat’s whole profundity – he does not fail to note that this progression ‘is true only for a certain time’. He says, word for word: ‘Regardless of how the rate of profit on stock may decline in consequence of the accumulation of capital on the land and of a rise of wages’ (by which Ricardo understands, N.B., the rise of the cost of production of the agricultural products necessary for the maintenance of labour capacity), ‘the aggregate amount of profits must nevertheless grow. Supposing, then, that in repeated accumulations of £100,000 the rate of profits fell from 20 to 19, 18, 17%, we should expect that the whole amount of profits received by the successive owners of capital would be always progressive; that it would be greater with the capital of £200,000 than with that of 100,000; yet greater with 300,000; and so on, increasing, although at a decreasing rate, with every increase of capital. However, this progress is true only for a certain time: thus 19% on £200,000 is more than 20 on 100,000; 18% on 300,000 more than 19% on 200,000; but after capital has accumulated to a large amount and profits have fallen, further accumulation diminishes the sum of profits. Thus, supposing the accumulation of 1,000,000 and profits of 7%, then the total amount of profit will be £70,000; now if an addition of 100,000 is made to the million, and profits fall to 6%, then £66,000 or a decrease of £4,000 will be received by the owners of the stock, although the amount of capital will be increased from 1,000,000 to 1,100,000.’ (loc. cit. p. 124, 125.) Of course this does not prevent Mr Bastiat from undertaking the operation of making a growing multiplicand grow in such a way that, with the declining multiplier, it produces a growing product, in true elementary-school pupil style, just as the laws of production did not prevent Dr Price from constructing his compound interest calculations. Because the rate of profit declines, it declines relative to wages, which must consequently grow proportionally and absolutely. So reasons Bastiat. (Ricardo observed this tendency towards the decline of the profit rate with the growth of capital; and since he confuses profit with surplus value, he was forced to make wages rise in order to let profits fall. But since he saw at the same time that wages really declined more than they rose, he let the value of wages grow, i.e. the quantity of necessary labour, without letting its use value grow. Thus in fact he only let ground rent increase. The harmonic Mr Bastiat discovers, however, that, with the accumulation of capitals, wages rise proportionally and absolutely.) He assumes what he has to prove, that the decline of the profit rate is identical with the increase in the rate of wages, and then ‘illustrates’ his presupposition with an arithmetical example which appears to have amused him greatly. If the decline of the profit rate expresses nothing more than the decline of the relation in which the total capital requires living labour for its reproduction, then it is another matter. Mr Bastiat overlooks the trifling circumstance that, in his presupposition, while the profit rate on capital declines, the capital itself increases, the capital presupposed to production. Now even Mr Bastiat ought to have had an inkling that the value of the capital cannot grow without appropriating surplus labour. The misery of agricultural overproduction, recorded in French history, could have shown him that the mere increase of products does not increase their value. The question would then revolve simply around an investigation of whether the fall of the profit rate is identical with the growth of the rate of surplus labour relative to necessary labour, or, instead, with the fall of the total rate of living labour employed relative to the reproduced capital. Mr Bastiat also therefore divides the product simply between capitalist and worker, instead of dividing it into raw material, instrument of production and labour, and asking himself in what proportional parts its value in exchange is applied against these different portions. The part of the product exchanged for raw material and instrument of production is obviously none of the workers’ business. What they divide with capital, as wages and profit, is nothing other than the newly added living labour itself. But what particularly worries Bastiat is who, after all, is to eat up the increased product? Since the capitalist eats up a relatively small part, does not the worker have to eat up a relatively large one? Particularly in France, whose total production is sufficient only in Bastiat’s fantasy to give anyone at all very much to eat, Mr Bastiat could have found convincing testimony that a mass of parasitic bodies come to cluster around capital, and, under one or another title, they lay hands on so much of the total production as to leave little danger of the workers being overwhelmed by abundance. It is clear, of course, that with large-scale production the total mass of labour employed can increase although the proportion of labour employed relative to capital decreases, and that there is no obstacle, therefore, which prevents an increasing working population from requiring a greater mass of products as capital increases. Incidentally, Bastiat – in whose harmonic brain all cows are grey – (see above, wages),confuses the decline of interest with the increase of wages, since this is rather an increase of industrial profit, which concerns the workers not at all, but concerns only the relation in which different species of capitalists divide up the total profit among themselves.