Section Three. Capital as Bearing Fruit. Interest. Profit. (Production Costs, etc.)

Capital is now posited as the unity of production and circulation; and the surplus value which it produces in a certain

sz sz lz z c \ period of time, e. g. a year, is = =—— , or=Sf X }.⁽¹⁾

K ' 5 7 ' p+c u [ p p p+C J Capital is now realised not merely as value which reproduces and therefore perpetuates itself, but also as value which posits value. By absorbing living labour time, on the one hand, and by its own movement of circulation (in which the movement of exchange is posited as capital's own movement, as the immanent process of objectified labour), capital relates itself to itself as positing new value, producing value. Its relation to surplus value is that of the basis to what is based upon it. Its movement consists in that, while producing itself, it at the same time behaves as basis towards itself as that which is based upon it; as presupposed value to itself as surplus value, or to surplus value as posited by it.

In a definite period of time which is posited as the unit by reference to which the number of its turnovers is measured, 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 posited by capital in one production process, but also by the number of times the process is repeated, or capital is reproduced, within that period. Because of the incorporation of circulation, capital's movement outside the immediate production process, into its reproduction process, surplus value no longer appears as posited by the simple, immediate relation of capital to living labour. This relation appears, rather, as merely one moment of its overall movement.

Capital setting out from itself as the active subject, the subject of the process — and in the turnover the immediate production process does in fact appear to be determined by the movement of capital as capital independently of its relation to labour — relates to itself as to self-multiplying value, i.e. it behaves towards surplus value as posited by and based upon capital; it relates itself as the source of production to itself as the product; as the producing value to itself as the value produced. It therefore no longer measures the newly produced value in terms of its real measure, the ratio of surplus labour to necessary labour, but in terms of capital itself as its presupposition. In a definite period of time, a capital of a definite value produces a definite surplus value.

Surplus value thus measured in terms of the value of the preposited capital, capital thus being posited as self-valorising value, is profit. Viewed sub specie capitalis, not sub specie aeternitatis,* surplus value is profit; and capital distinguishes itself within itself as capital, the producing and reproducing value, from itself as profit, the newly produced value. The product of capital is profit. The magnitude surplus value is therefore measured by reference to the value magnitude of the capital, and the rate of profit is consequently determined by the ratio between the value of the profit and that of the capital.

A very large part of what belongs here has been discussed above.b But what has been anticipated must be placed here.

In so far as the newly posited value, which is of the same nature as capital, is itself re-absorbed into the production process, in turn maintains itself as capital, capital itself has increased and now operates as a capital of greater value. After capital set profit as the newly produced value apart from itself as the preposited self-valorising value and posited profit as the measure of its valorisation, capital again cancels that separation and posits profit in its identity with itself as capital, which, having increased by the amount of the profit, now recommences the same process on a larger scale. By describing its circle it augments itself as the subject of that circle, and thus describes ever larger circles, moving in a spiral.

The general laws we have so far developed can be briefly summarised thus: Actual surplus value is determined by the ratio of surplus labour to necessary labour; or by the ratio between the portion of capital, of objectified labour, which is exchanged for living labour, and the portion of objectified labour by which it is replaced. On the other hand, surplus value in the form of profit is measured in terms of the total value of the capital preposited to the production process. Hence—assuming the same surplus value, the same ratio of surplus labour to necessary labour—the rate of profit depends on the ratio between the part of capital exchanged for living labour and the part of it existing in the form of raw material and means of production. So, as the portion exchanged for living labour declines, there is a corresponding decline in the rate of profit. In the same degree, therefore, in which capital as capital takes up more space in the production process relative to immediate labour, i.e. the greater the increase in relative surplus value — in the value-creating power of capital — the more the rate of profit declines.

We have seen that the size of the preposited capital, the capital preposited to reproduction, is specifically expressed in the growth of fixed capital as the produced productive power, objectified labour endowed with an illusory life of its own. The total size of the value of the producing capital will be expressed in every portion of it as a smaller proportion of capital exchanged for living labour, as compared to the part of capital existing as constant value. Take manufacturing industry as an example. In the same proportion as fixed capital (machinery, etc.) increases, there must be an increase in the part of capital existing in the form of raw materials and a decline in the part of it exchanged for living labour.

Hence the rate of profit falls in proportion to the value magnitude of the capital preposited to production — and of the part of capital working in production as capital. The broader the existence already attained by capital, the smaller is the ratio of the value newly [VII-16] produced to that preposited (the value which is reproduced). Therefore, if we assume equal surplus value, i.e. an equal ratio of surplus labour to necessary labour, the profit may still be unequal; and, indeed, must be unequal, in relation to the size of the capitals. The rate of profit may fall, although the actual surplus value rises. The rate of profit may rise, although the actual surplus value falls.

In fact, capital may grow, and profit may grow in the same proportion, if the part of capital preposited as value and existing in the form of raw materials and fixed capital increases in the same proportion as the part of capital exchanged for living labour. Yet this proportionality presupposes growth of capital without growth and development of the productive power of labour, an assumption that cannot possibly be made. It contradicts the law of development of capital and especially that of the development of fixed capital. Such progress can only take place at stages of development at which the mode of production of capital is not yet adequate to it, or in spheres of production in which capital has arrogated dominance to itself as yet merely in form, e.g. in agriculture. In that sphere, the natural fertility of the soil may have the same effect as an increase of fixed capital — i.e. the relative surplus labour time may increase — without reducing the quantity of necessary labour time. (E.g. in the UNITED STATES.) The CROSS PROFIT, i.e. the surplus value considered outside its formal relation, not as a proportion, but as a simple quantity of value without reference to another quantity, will on average grow not in step with the rate of profit, but in step with the size of the capital.

While the rate of profit will therefore be inversely related to the value of capital, the sum of profit will be directly proportional to it. However, this proposition, too, only holds for a limited level of development of the productive power of capital or labour. A capital of 100 operating at a profit of 10% yields a smaller sum of profit than a capital of 1,000 operating at a [rate of] profit of 2%. In the first case the sum is 10, in the second it is 20, i.e. the GROSS PROFIT on the large capital is twice that on the capital which is Vio its size, although the rate of profit on the smaller capital is 5 times that on the larger capital. But if the profit on the larger capital were only 1%, the sum of profit would be 10, the same as that for the capital which is Vio its size, because the rate of profit would have declined in the same proportion as the size of the capital [had increased]. If the rate of profit on the capital of 1,000 were only 72%, the sum of profit would be only half as great as that of the capital Vio its size, only 5, because the rate of profit would be 7^[20]th.

Therefore, expressed in general terms: If the rate of profit of the larger capital declines, but not in proportion to its size, the GROSS PROFIT increases even though the rate of profit declines. If the rate of profit declines in proportion to its size, the GROSS PROFIT remains the same as that on the smaller capital; it remains stationary. If the decline in the rate of profit is proportionately greater than the increase in the size of the capital, the GROSS PROFIT on the larger capital, as compared with the smaller, declines just as much as the rate of profit does.

In every respect, this is the most important law of modern political economy, and the most essential one for comprehending the most complex relationships. It is the most important law from the historical viewpoint. Hitherto, despite its simplicity, it has never been grasped and still less has it been consciously formulated.

This decline in the rate of profit is synonymous with: (1) the productive power already produced and the material basis which it constitutes for new production; this presupposes, at the same time, an enormous development of SCIENTIFIC POWERS; (2) the decline of the part of the capital already produced which must be exchanged for immediate labour, i.e. the decline of the quantity of immediate labour necessary for the reproduction of an immense value, which is embodied in a large mass of products, a large mass of low-priced products, because the total sum of prices=the capital reproduced+profit; (3) [great] dimensions of capital in general, and also of the portion of it which is not fixed capital; hence the development of intercourse on a vast scale, a great number of exchange operations, a large market, and the all-round nature of simultaneous labour; means of communication, etc., the existence of the consumption fund necessary to effect this gigantic process (the workers eat, need housing, etc.). This being so, it becomes evident that the material productive power already available, already elaborated, existing in the form of fixed capital, as well as the SCIENTIFIC POWER, population, etc., in short, all the prerequisites of wealth, all the conditions for the maximum reproduction of wealth, i.e. for the rich development of the social individual — that the development of the productive forces, brought about by capital itself in its historical development, at a certain point abolishes the self-valorisation of capital, rather than posits it.

Beyond a certain point, the development of the productive forces becomes a barrier to capital, and consequendy the relation of capital becomes a barrier to the development of the productive forces of labour. Once this point has been reached, capital, i.e. wage labour, enters into the same relation to the development of social wealth and the productive forces as the guild system, serfdom and slavery did, and is, as a fetter, necessarily cast off. The last form of servility assumed by human activity, that of wage labour on the one hand and of capital on the other, is thereby shed, and this shedding is itself the result of the mode of production corresponding to capital. It is precisely the production process of capital that gives rise to the material and spiritual conditions for the negation of wage labour and capital, which are themselves the negation of earlier forms of unfree social production.

The growing discordance between the productive development of society and the relations of production hitherto characteristic of it, is expressed in acute contradictions, crises, convulsions. The violent destruction of capital as the condition for its self-preservation, and not because of external circumstances, is the most striking form in which it is ADVISED TO BE GONE AND TO GIVE ROOM TO A

HIGHER STATE OF SOCIAL PRODUCTION. It is not merely the growth of SCIENTIFIC POWER but the measure in which it has already been posited as fixed capital; the extent, the breadth, in which it has been realised and has taken possession of the totality of production. It is, also, the development of population, etc., in short, of all the moments of production; for the productive power of labour, just as the employment of machinery, depends on the population number; the growth of population is in and for itself both the presupposition for, and the result of, the growth of the quantity of use values to be reproduced, and therefore also to be consumed.

Since this decline of profit is synonymous with a decline in the ratio of immediate labour to the amount of objectified labour which it reproduces and posits anew, capital will try everything to make up for the smallness of the proportion of living labour to the size of capital in general, and hence for the smallness of the proportion which surplus value, if expressed as profit, bears to the preposited capital. It will seek to do so 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 CREATEST EXPANSION

OF EXISTING WEALTH WILL COINCIDE WITH DEPRECIATION OF CAPITAL, DEGRADATION OF THE LABOURER, AND A MOST STRAIGHTENED 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 [VI I-17] 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.

In the developed movement of capital, this process is slowed down by moments other than crises; e.g. the continuous depreciation of a part of the existing capital; the conversion of a large part of capital into fixed capital which does not serve as an agent of direct production; the unproductive dissipation of a large part of capital, etc.

(Capital, productively employed, is always replaced in a double way; as we have seen, the positing of value by productive capital presupposes a counter-value. The unproductive consumption of capital replaces it on the one hand, and annihilates it on the other.) //The same law is expressed simply — but this form of expression is to be considered later, in the population theory — as the relation of the growth of population, notably of the working part of it, to the capital already preposited.//

(The fact, further, that the fall in the rate of profit can be checked by the elimination of existing deductions from profit, e.g. a fall in taxes, a reduction in rent, etc., does not, for all its practical significance, really belong here, since these are themselves portions of profit under another name and appropriated by persons other than the capitalists themselves.) //That the same law manifests itself differently in the relation of the multitude of capitals to one another, i.e. in competition, also belongs in another section. It may also be postulated as the law of accumulation of capitals, as e.g. by Fullarton. We shall take this up in the next section.//

//It is important to draw attention to the fact that this law is not simply concerned with the development of productive POWER 8vvà(JL6i,, but at the same time with the extent to which this PRODUCTIVE POWER operates as capital, i.e. the extent to which it is realised above all as fixed capital, on the one hand, and as population, on the other.//

(The fall [in the rate of profit] may also be checked by the creation of new branches of production in which more immediate labour is needed in proportion to capital, or in which the productive power of labour, i.e. the productive power of capital, is not yet developed.) (Similarly, 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" (W. Atkinson, Principles of Political Economy etc., Lond., 1840, p. 55).

But he has FAILED IN UNDERSTANDING EVEN WHAT THE RATE OF PROFIT IS. A. Smith attributed the fall in the rate of profit as capital grows to the competition of capitals among themselves.⁽²⁾ Ricardo objected to this⁽³⁾ that while competition may certainly reduce the profits in the different branches of business to an average level, even up the rate of profit, it cannot depress this average rate itself. A. Smith's proposition is correct to the extent that it is only in competition— the action of capital on capital — that the immanent laws of capital, its TENDENCIES, are realised. But it is incorrect in the sense in which he understands it — namely that competition imposes on capital laws external to capital, laws brought in from outside, which are not capital's own laws. Competition can permanently depress the rate of profit in all branches of industry, i.e. the average rate of profit, only if, and only to the extent that, a general and permanent fall in the rate of profit operating as a law is conceivable also prior to and regardless of competition. Competition executes the inner laws of capital; it turns them into coercive laws in relation to the individual capital, but it does not invent them. It realises them. To wish to explain them simply by competition means to admit that one does not understand them.

Ricardo for his part says:

"No accumulation of capitals can permanently depress profits, unless some equally permanent cause rises wages" ([Des principes de l'économie politique et de l'impôt] p. 92, t. II, Paris, 1835, traduit de Constancio).

He finds this cause in the growing, relatively growing unproduc-tiveness of agriculture, "the growing difficulty of increasing the quantity of means of subsistence", i.e. in the growth of the share of the wages of labour. Not that he sees labour as really receiving more, but as receiving the product of more labour; in a word, necessary labour makes up a greater share of the labour required for the production of agricultural products. The fall in the rate of profit is therefore accompanied, in Ricardo, by a nominal growth of wages and a real growth of rent. His is a one-sided analysis because it only conceives of one single CASE — the rate of profit may just as much fall in consequence of a momentary rise in wages, etc.—and because it elevates to a universal law an historical relationship characteristic of a period of 50 years but inverted during the next 50 years, and because, in general, it is based upon the historical disproportion between the development of industry and agriculture. In and for itself, it was odd of Ricardo, Malthus, etc., to postulate universal, eternal laws for physiological chemistry at a time when as yet it scarcely existed. This analysis of Ricardo's has therefore been attacked from all sides, mainly because of an instinctive feeling that it was wrong and unsatisfactory, but mostly on account of its true rather than its false aspect.

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 MORE IN 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).

"COMPETITION AMONG THE INDUSTRIAL CAPITALISTS can LEVEL the profits rising especially high above the level, but it cannot LOWER THIS ORDINARY LEVEL" (Ramsay [An Essay on the Distribution of Wealth, pp. 179-80], IX, 88 u ) .

(Ramsay and other economists justly distinguish between the growth of productivity in the branches of industry supplying the constituents of fixed capital, and naturally of WAGES, and growth in other industries, e.g. the luxury-goods industries. The latter industries cannot diminish necessary labour time. However, this can be achieved by exchanging their products for agricultural products of foreign nations, the effect then being the same as if productivity had been raised in agriculture. Hence the importance of free trade in corn for the industrial capitalists.)

Ricardo says (On the Principles of Political Economy, and Taxation, 3rd English edition, London, 1821):

"THE FARMER AND MANUFACTURER CAN NO MORE LIVE WITHOUT PROFITS, THAN THE LABOURER WITHOUT WAGES" (I.e., p. 123). "The natural tendency of profits is to fall; for, in the progress of society and wealth, the ADDITIONAL [quantity of] FOOD requires more and more labour. This tendency, this gravitation of profit, is checked at repeated intervals by the improvements in machinery, connected with the production of NECESSARIES, as well as by discoveries in the science of agriculture which diminish the production costs" (I.e., pp. 120-21).

Ricardo immediately lumps together profit and surplus value; he never made this distinction at all. But while [the rate of] surplus value is determined by the ratio of the surplus labour employed by capital to necessary labour, the rate of profit is merely the ratio of the surplus value to the total value of the capital preposited to production. Hence its proportion falls and rises with the ratio of the part of capital exchanged for living labour to that existing as material and fixed capital. Under all circumstances, surplus value considered as profit must express a proportion of the gain that is smaller than the actual proportion of surplus value. For under all circumstances it [profit] is measured in terms of the total capital, and this is always greater than the capital employed in WAGES and exchanged for living labour.

Since Ricardo thus simply lumps together surplus value and [VII-18] profit, and since surplus value can only diminish constandy, diminish tendentially, if there is a decline in the ratio of surplus labour to necessary labour, i.e. to the labour required for the reproduction of the labour capacity, and this is only possible given a decline in the productive power of labour, Ricardo assumes that the productive power of labour, while increasing in industry with the accumulation of capital, does decline in agriculture. From the sphere of political economy he flees into organic chemistry. We have proved that this is a necessary tendency without referring to rent at all, just as we had no need to refer, e.g., to rising demand for labour, etc.

How rent is connected with profit is to be discussed when we come to consider rent itself; does not belong here. But modern chemistry has shown that Ricardo's physiological postulate, presented as a universal law, is false. Now Ricardo's pupils, to the extent that they do not merely echo him, have, like modern political economy in general, quietly dropped what they found disagreeable in their master's doctrine. To DROP THE PROBLEM IS THEIR

GENERAL METHOD OF SOLVING IT.

Other economists, e.g. Wakefield, take refuge in discussing the FIELD OF EMPLOYMENT for the growing capital.⁽⁴⁾ This belongs in the analysis of competition and is evidence, rather, of a preoccupation with the difficulty for capital to realise a growing volume of profit, which amounts to a denial of the immanent tendency of the rate of profit to fall. And the necessity for capital to seek a constantly expanding FIELD OF EMPLOYMENT is itself a consequence. One cannot list Wakefield and suchlike with those who first raised the question. (To some extent, they merely reproduce A. Smith's view.)

Finally, there are the harmonists among the most recent economists, headed by the American Carey, whose most obtrusive companion was the Frenchman Bastiat. (In passing, it may be noted as a fine irony of history that the Continental FREETRADERS parrot Mr. Bastiat, who for his part draws his wisdom from Carey the protectionist.) They admit the FACT that the rate of profit tends to fall in the degree in which productive capital increases. But they explain it simplement and bonnement⁽⁵⁾ by an increase in the value of the share of labour, i.e. in the proportion the worker receives of the total product; capital, for its part, benefits by the growth of the GROSS PROFITS. In this way, the unpleasant oppositions and antagonisms within which classical political economy moves, and which Ricardo emphasises with scientific remorselessness, are presented as WELL-TO-DO HARMONIES. Carey's analysis at least has a semblance of being one, and in general he does his own thinking. His analysis concerns a law which we need not discuss until we get to the theory of competition, and it is only then that we shall deal with him.

But Bastiat's insipidity, which expresses platitudes as paradoxes, polishes them en facettes, and conceals the most complete poverty of thought under a façade of formal logic, can be disposed of at once. //At this point we can insert something about the antithesis between Carey and Bastiat from Notebook 111.7/ In Gratuité du crédit. Discussion entre M. Fr. Bastiat et M. Proudhon, Paris, 1850 (it may be noted in passing that Proudhon cuts a highly ridiculous figure in this polemic, in which he conceals his incapacity for dialectical reasoning under a cloak of rhetorical pretension) Bastiat says in Letter VIII (in which, incidentally, the noble gentleman tout bonnement and tout simplement transforms, with his reconciling dialectic, the gain accruing from the simple division of labour to the road- maker just as much as to the road-user, into a gain accruing to the "road" itself, i.e. to capital):

"In the degree in which capitals (and with them their products) are augmented, the absolute part which returns to capital is augmented, and its proportional part diminished. In the degree in which capitals (and with them their products) are augmented, both the proportional part and the absolute part accruing to labour are augmented. Since the absolute part accruing to capital rises, even though it only draws successively V2. V3, V4, V5 of the total product, labour, which successively gets V2. ^[2]/3> ⁽⁶⁾U' V5, obviously draws from the distribution an ever greater part, both proportionately and absolutely."⁽⁷⁾

As an illustration he gives this:

Total product
Part accruing
Part accruing
to capital
to labour

1st period 1,000 >/^[2] or 500 V^[2] or 500 2nd " 1,800 V^[3] or 600 ^[2]/^[3] or 1,200 3rd " 2,800 V^[4] or 700 ^[3]/^[4] or 2,100 4th " 4,000 V5 or 800 7 ^[5] or 3,200

(Pp. 130, 131)

The same trick is repeated on p. 288 in the form of an increasing GROSS PROFIT accompanied by a falling rate of profit but an increasing mass of products sold at lower prices, and on that occasion he speaks with great importance of

"the law of an infinitely decreasing series which never reaches zero, a law well known to mathematicians" (p. 288). "One sees here" (charlatan) "that the p. 288).

Ricardo had a presentiment of his Bastiat. While stressing that, despite the decline in the rate of profit, profit grows as a sum with the growth of capital — here he anticipates all of Bastiat's wisdom — he does not fail to observe that this progression "is only true for a certain time". He says, literally:

"However the rate of the PROFITS OF STOCK may diminish in consequence of the accumulation of capital on die land, and the rise of wages" (and by this, notabene, Ricardo understands a rise in the production costs of the agricultural products indispensable for die maintenance of die labour capacity) "the aggregate amount of PROFITS still must increase. Thus supposing that, widi repeated accumulations of £100,000, the rate of profit should fall from 20 to 19, to 18, to 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 when the capital was £200,000, dian when 100,000; still greater when 300,000; and so on, increasing, diough at a diminishing rate, WITH EVERY INCREASE OF CAPITAL. This progression however is only true for a certain time: thus 19% on £200,000 is more than 20 on 100,000; 18% on 300,000 is more than 19% on 200,000; but after capital has accumulated TO A LARGE AMOUNT, and PROFITS have fallen, die further accumulation diminishes the sum of profits. Thus suppose the accumulation should be 1,000,000, and the PROFITS 7%. The whole amount of profits will be £70,000; now if an addition of £100,000 be made to the million, and profits should fall to 6%, [VII-19] £66,000 or a diminution of £4,000 will be received by die owners of STOCK, although the AMOUNT OF CAPITAL will be increased from 1,000,000 to 1,100,000" (I.e., pp. 124, 125).

Of course, this does not prevent Mr. Bastiat from carrying out the schoolboyish operation of making an increasing multiplicand to increase in such a way that, when combined with a declining multiplier, it should yield an increasing product, as little as the laws of production prevented Dr. Price from framing his compound interest calculation.^[29] Since the rate of profit declines, it does so relatively to wages, which consequendy must grow both propor-tionally and absolutely. That is Bastiat's conclusion.

(Ricardo was aware of the tendency of the rate of profit to fall with the increase of capital; and since he confused profit with surplus value, he could account for the fall in profit only by making wages rise. Yet since he also realised that wages actually declined rather than increased, he caused their value, i.e. the quantity of necessary labour, to increase, but did not cause their use value to do the same. In fact, with him, it is rent alone that increases. The harmonising Bastiat, however, discovers that, as capitals accumulate, wages increase both proportionally and absolutely.)

He assumes what he has to prove, i.e. that the decline in the rate of profit is identical with the increase in the rate of wages, and then "illustrates" his assumption with a numerical example which seems to have greatly tickled him.⁽⁸⁾ If the decline in the rate of profit expresses nothing but a decline in the proportion in which the total capital requires living labour for its reproduction, that is another story. Mr. Bastiat overlooks the little circumstance that, in his presupposition, even though the rate of profit on capital declines, capital itself, the capital preposited to production, increases. Even Mr. Bastiat could have surmised that the value of capital cannot increase, unless capital appropriates surplus labour. The lamentations, constant in French history, about excessive harvests could have shown to him that the mere augmentation of the quantity of products does not increase value. Then it would merely be a matter of finding out whether the fall in the rate of profit was synonymous with the growth of the rate of necessary labour in relation to surplus labour; or, rather, whether it was not synonymous with the fall in the overall rate of the living labour employed in relation to the capital reproduced.

Mr. Bastiat therefore distributes the product simply between capitalist and worker, instead of allocating it between raw material, instrument of production, and labour, and asking himself in what proportional parts its value is exchanged for these different elements. Obviously, the part of the product exchanged for raw material and instrument of production does not concern the workers. What they share with capital, as wages and profit, is nothing but the newly added living labour itself. Yet what particularly worries Bastiat is the question of who shall consume the increased product. Since the capitalist only consumes a relatively small part, must not the worker consume a relatively large one? Particularly in France, whose total production yields too much to consume only in Mr. Bastiat's imagination, he could see that capital is sponged on by a host of parasites, who under one title or another draw so much of the total production to themselves as to rule out the possibility of any undue affluence for the worker. It is clear, by the way, that with large-scale production the total amount of labour employed may increase even though the ratio of the labour employed to capital declines, and that, therefore, there is nothing to prevent a situation in which, with the growth of capital, a growing population of workers requires a larger mass of products. Moreover, since in Bastiat's harmonising brain ajl cats are grey (see above what he says about wages⁽⁹⁾), he confuses the decline of interest with the increase of wages. The former implies, rather, an increase in industrial profit; and has no bearing at all on the workers, but only affects the proportion in which the various species of capitalists share in the total profit.

Retournons à nos moutons.⁽¹⁰⁾ The product of capital is therefore profit. By relating itself to itself as profit, it relates itself to itself as the source of production of value, and the rate of profit expresses the proportion in which it has increased its own value. But the capitalist is not merely capital. He must live, and since he does not live by labour, he must live on profit, i.e. on the alien labour which he appropriates. As a source of wealth, capital is posited thus. Since it has incorporated productivity as one of its immanent properties, capital treats profit as revenue. It can consume part of that revenue (apparently all of it, but this will be seen to be wrong), without ceasing to be capital. After consuming this fruit, it can yield fruit afresh. It can represent consuming wealth, without ceasing to represent the general form of wealth, an impossibility for money in simple circulation. Money had to refrain from enjoyment in order to remain the general form of wealth; or, if it consumed itself through exchange for real wealth, enjoyments, it ceases to be the general form of wealth.

Thus profit, like wages, appears as a form pertaining to distribution. But since capital can only grow by reconverting profit into capital — into surplus capital — profit is equally a form pertain-ing to the production of capital. In just the same way, the wage is a mere relation of production from the standpoint of capital, but a relation of distribution from that of the worker.

It is seen here that the relations of distribution are themselves produced by the relations of production, and represent them d'un autre point de vue.⁽¹¹⁾ It is further seen that the relation of production to consumption is posited by production itself. The absurd view taken by all bourgeois economists, e.g. J. St. Mill, who regards the bourgeois relations of production as eternal, but their forms of distribution as historical⁽¹²⁾; it is evident that he understands neither the former nor the latter.

With respect to simple exchange, Sismondi correcdy remarks:

"An échange always presupposes 2 values; their fates may be different; yet the quality of capital and revenue does not go with the object exchanged, but is attached to the person who owns it" (Sismondi, [Nouveaux principes d'économie politique, Vol. I, p. 90] VI «J.

Therefore, revenue cannot be explained in terms of simple exchange relations. Whether a value acquired through exchange possesses the quality of representing capital or revenue is determined by relations which lie beyond simple exchange. Hence it is stupid to wish to reduce these more complicated forms to those simple exchange relations, as the harmonising FREETRADERS do. Considered from the standpoint of simple échange, and taking accumulation to be merely the accumulation of money (exchange value), the profit and revenue of capital are impossible.

"If the rich spent their accumulated wealth on luxury goods — and they can only obtain commodities through échange—their funds would soon be exhausted... But in the ordre social, wealth has acquired the ability to reproduce itself by means of alien labour. Wealth, like labour, and by means of labour, yields an annual fruit, which can annually be destroyed without the rich thereby becoming poorer. This fruit is the revenue which springs from capital" (Sismondi, IV) [ibid., pp. 81-82].

If profit therefore appears as the result of capital, it also appears, on the other hand, as the presupposition for the formation of capital. And so the circular movement is posited anew, in which the result appears as the presupposition.

"Thus part of the revenue was converted into capital, into a permanent self-multiplying value which no longer perished. This value detached itself from the commodity which had produced it; like a metaphysical, insubstantial quality it always remained in the possession of the same cultivateur" (capitalist) "for whom it took on different forms" (Sismondi, VI) [ibid., p. 89].

[VI1-20] When capital is posited as positing profit, as a source of wealth independent of labour, each part of the capital is supposed to be equally productive. Just as surplus value in profit is measured by reference to the total value of capital, it appears to have been produced to an equal extent by its different components. Hence, the circulating part of capital (the part consisting of raw materials and approvisionnement) does not yield a higher profit than the component which constitutes fixed capital; indeed profit refers evenly to these components according to their size.

Since the profit of capital is realised only in the price which is paid for it, for the use value it produces, profit is therefore determined by the excess of the price obtained over the price covering the outlays. Moreover, since this realisation only takes place in the act of exchange, the profit accruing to the individual capital is not necessarily limited by its surplus value, by the surplus labour contained in it, but depends on the excess of the price it obtains in the act of exchange. It may be exchanged for more than its equivalent, and then the profit it yields is greater than its surplus value. This can only be the case if the other party to the exchange does not obtain an equivalent. The total surplus value, and similarly the total profit, which is merely the surplus value itself calculated in a different way, can neither grow nor diminish as a result of this operation; what is modified here is not the total surplus value itself, but only its allocation among the different capitals. However, this does not belong here, but in the analysis of the multitude of capitals.

The value of the capital preposited in production appears over against profit as advances—production costs, which must be replaced in the product. What is left after the part of the price which replaces them has been deducted, constitutes profit. Since surplus labour — which comprises profit and interest, these being merely portions of it — does not cost capital anything, and hence is not part of the value advanced by it — not part of the value which it possessed before the production process and the valorisation of the product — this surplus labour, which is included in the production costs^[30] of the product and constitutes the source of surplus value, and hence also of profit, does not figure under the production costs of capital. These are only equal to the values actually advanced by it, not to the surplus value appropriated in production and realised in circulation. Consequently, the production costs from the standpoint of capital are not the actual production costs, precisely because surplus labour does not cost it anything. The excess of the price of the product over the price of the production costs constitutes the profit of capital.

Hence, capital can make a profit even if its actual production costs — i.e. the whole of the surplus labour it sets to work — have not been realised. Profit, the excess over the advances made by capital, may be smaller than surplus value, the excess of living labour obtained by capital through exchange over the objectified labour which it has exchanged for the labour capacity. However, through the separation of interest from profit — something which we shall discuss presently — a part of the surplus value is posited as a production cost even for productive capital.

The confusion of the production costs from the standpoint of capital with the quantity of labour objectified in the product of capital, including surplus labour, has given rise to the assertion that "profit is not included in the NATURAL PRICE", and that it is "absurd to call the excess or profit A PART OF THE EXPENDITURE" (Torrens, [An Essay on the Production of Wealth, London, 1821, pp. 51-52,] IX, 30 U).

This leads then to a great deal of confusion. Either profit is seen not as merely being realised in the act of exchange but as originating from it (which, under all circumstances, can only be the case relatively, when one party to the exchange does not obtain his equivalent) or else the magic power is ascribed to capital of creating something out of nothing. As the value posited in the production process realises its price by means of exchange, the price of the product appears as determined IN FACT by the sum of money which expresses an equivalent for the total quantity of labour contained in the raw material, the machinery, the wages and the unpaid surplus labour. Here price therefore still appears merely as an altered form of value; value expressed in money; but the magnitude of this price is presupposed in the production process of capital. Capital thereby appears as price-determining; so that price is determined by the advances made by capital+the surplus labour it has realised in the product. We shall see later how, on the contrary, price appears as profit-determining. And if at this point the total actual production costs appear as price-determining, price will later appear as determining the production costs. To impose the immanent laws of capital upon it as an external necessity, competition apparendy completely inverts all of them, distorts them.

Just to repeat: The profit of capital does not depend upon its size; but rather, given the same size, upon the relative magnitude of its components (the constant and the variable part); then upon the productivity of labour (which, however, expresses itself in that first proportion, since if productivity were lower, the same capital could not work up the same quantity of material in the same time with the same amount of living labour); upon the turnover time, which is determined by the different proportions between fixed and circulating capital, the different durability of the fixed capital, etc., etc. (see above*). The inequality of profit in different branches of industry for capitals of the same size, i.e. the inequality of the rate of profit, is a condition and presupposition for the equalisations brought about by competition.

In so far as capital obtains, purchases, raw material, instrument and labour by means of exchange, its elements themselves are

a See this volume, pp. 102-12.— Ed.

already there in the form of prices, already posited as prices, preposited to capital. The way the market price of its product compares with the prices of its elements then becomes decisive for it. But this belongs in the chapter on competition.

So the surplus value posited by capital in a given turnover time assumes the form of profit, in so far as it is measured by reference to the total value of the capital preposited to production; whereas surplus value is measured directly by the surplus labour time which capital gains in its exchange with living labour. Profit is merely another, more developed — in the sense of capital — form of surplus value. Surplus value here is regarded rather as exchanged in the production process for capital itself, not for labour. Capital therefore appears as capital, as preposited value which, through the mediation of its own process, is related to itself as posited, produced value, and the value posited by it is called profit.

The 2 immediate laws manifested to us by this conversion of surplus value into the form of profit are:

(1) Surplus value expressed as profit always appears as a smaller proportion than that actually constituted by surplus value in its immediate reality. For instead of being measured in relation to a part of the capital, that exchanged for living labour (a ratio which is manifested as that of surplus to necessary labour), it is measured in relation to the total. Whatever the surplus value posited by a capital a, and whatever the proportion in a of c and v, the constant and the variable part of capital, the surplus value s must appear smaller if measured in terms of c + v than if measured in terms of its real measure, v. Profit, or the rate of profit — if profit is not considered as an absolute sum but, as is usually the case, as a proportion (the rate of profit is profit expressed as the proportion in which capital has posited surplus value)—[VII-21] never expresses the actual rate of exploitation of labour by capital but always a much smaller proportion, and that proportion is the more misleading the larger the capital is. The rate of profit could express the actual rate of surplus value only if the whole capital were converted into wages; if the whole capital were exchanged for living labour, i.e. only existed as approvisionnement Then not only would it not exist in the form of already produced raw material (as is the case in the extractive industries), so that the raw material would = 0; but the means of production, whether in the form of instruments or developed fixed capital, would also=0. The latter CASE cannot possibly occur on the basis of the mode of production corresponding to capital. If a = c + v, whatever the magnitude of s it follows that

c + v v 1 (2) The 2nd great law is that in the degree in which capital has already appropriated living labour in the form of objectified labour; in the degree, therefore, in which labour has already been capitalised and thus increasingly operates in the production process in the form of fixed capital; or in the degree in which the productive power of labour increases; the rate of profit declines. The growth of the productive power of labour is synonymous with (a) the growth of relative surplus value or the relative surplus labour time which the worker gives to capital; (b) the diminution of the labour time necessary for the reproduction of the labour capacity; (c) the decrease of the part of capital exchanged in general for living labour relative to those parts of it which participate in the production process as objectified labour and preposited value. The rate of profit is thus inversely related to the growth of relative surplus value or relative surplus labour, to the development of the productive forces, and to the size of the capital employed in production as [constant] capital. In other words, the second law is the tendency of the rate of profit to fall with the development of capital, both of its productive power and of the extent to which it has already posited itself as objectified value; the extent to which labour as well as productive power have been capitalised.

Other factors which can affect the rate of profit, which can depress it for longer or shorter periods, do not yet come into consideration. It is quite correct to say that, if the production process is considered as a whole, the capital acting as material and as fixed capital is not merely objectified labour but also must be newly reproduced by labour, and reproduced constantly. Therefore, its existence, on any particular scale, presupposes a certain magnitude of the working population, a large population, which in and for itself is a prerequisite for any productive power; but this reproduction everywhere presupposes the operation of fixed capital and raw material and SCIENTIFIC POWER, both as such and as appropriated by production and already realised in it. This point is only to be developed in more detail when we come to discuss accumulation.

It is further clear that, although the part of capital exchanged for living labour declines relative to total capital, the total quantity of living labour employed may increase or remain the same if capital grows in the same or in a greater proportion. Hence the population may continuously grow in the proportion in which necessary labour declines. If capital a expends l/^[2] in c and l/^[2] in v, and capital a expends ^[3]/^[4] in c and 7^[4] in v> then capital a' could employ ^[2]/^[4] v on 7 ^[4] c. But if it was originally=^[3]/^[4] c + '/^[4] v, it is now =^[6]/^[4] c+^[2]/^[4] v, or it has increased by ^[4]/^[4], i.e. it has doubled. However, this relationship too is only to be investigated more closely in the theory of accumulation and population. In general, at this stage we must not be diverted from our subject by the conclusions following from the laws stated above or by any speculations on that matter.

Hence, the rate of profit is determined not only by the ratio of surplus labour to necessary labour, or by the ratio in which objectified labour is exchanged for living labour, but in general by the ratio of living labour employed to objectified labour; the ratio of the portion of capital exchanged in general for living labour to the part which participates in the production process as objectified labour. And that portion declines in the same proportion as surplus labour increases relative to necessary labour.

(Since the worker must reproduce the part of capital exchanged for his labour capacity just as much as he must reproduce the other parts of capital, the proportion in which the capitalist gains in his exchange with the labour capacity appears as determined by the ratio of surplus labour to necessary labour. Originally, necessary labour appears merely to replace the capitalist's outlays for him. But since — as is shown in reproduction — he lays out nothing but labour itself, the relation of surplus value can be simply expressed as the relation of surplus labour to necessary labour.)

//With respect to fixed capital, and durability as a condition of it which does not enter from without, the following should also be noted: To the extent that the instrument of production is itself value, objectified labour, it contributes nothing as a productive force. If a machine whose production costs 100 working days only replaced 100 working days, it would in no way increase the productive power of labour and in no way diminish the cost of the product. The more durable the machine, the greater is the number of times the same quantity of product can be produced with its aid; or the greater the number of times circulating capital can be renewed, or its reproduction repeated; and the smaller is the proportion of value necessary to replace the déchet, the WEAR and TEAR of the machine; i.e. the greater is the reduction in the price of the product and its previous [jemalig] production cost.

However, we cannot as yet bring the price relation into our analysis. The reduction of price as a condition for conquering the market can only be discussed in connection with competition.

Hence the question must be posed differently. Suppose that the instrument of production could be obtained by capital without cost, for nothing. What would be the consequence? The same as if the circulation costs were zero. I.e. the labour necessary to maintain the labour capacity would be reduced, and so surplus labour, i.e. surplus value, [would be increased] without its costing capital the slightest amount. Such an increase in productive power, a kind of machinery which does not cost capital anything, is the division of labour and the combination of labour within the production process. But it presupposes labours on a large scale, i.e. the development of capital and wage labour.

Another productive force which costs it nothing is SCIENTIFIC POWER. (It is self-evident that capital must always pay a certain duty for the support of parsons, schoolmasters, and men of learning, whether the SCIENTIFIC POWER they develop is great or small.) However, capital can only appropriate it by the employment of machinery (partly also in chemical processes). The growth of population is also a productive force which costs capital nothing.

In short, all the social forces which develop with the growth of population and the historical development of society cost it nothing. But to the extent that they themselves require a substratum produced by labour, i.e. existing in the form of objectified labour, in order to be employed in the immediate production process, and hence are themselves values, capital can appropriate them only by giving an equivalent in exchange for them.

WELL. Fixed capital whose employment is more costly than that of living labour, [VII-22] i.e. which requires more living labour for its production or maintenance than the amount of labour it replaces, would be a NUISANCE. Such as costs nothing at all and merely needs to be appropriated by the capitalist, would possess maximum value for capital. The simple proposition that machinery possesses maximum value for capital if its value=0, implies that every reduction in its cost is a gain for the capitalist. While, on the one hand, it is the tendency of capital to increase the total value of fixed capital, it is, at the same time, [its tendency] to diminish the value of every fractional part of it.

Once fixed capital enters into circulation as value, it ceases to operate as use value in the production process. Its use value consists precisely in that it increases the productive power of labour, reduces necessary labour, augments relative surplus labour and thus surplus value. Once it enters into circulation, its value is merely replaced, not increased. On the other hand, the product, circulating capital, is the bearer of surplus value, which is only realised when the product emerges from the production process into circulation.

If the machine were of infinite durability, if it were not itself composed of perishable material that has to be reproduced (quite apart from the invention of more efficient machines, which rob it of its character as a machine), if it were a perpetuum mobile, it would most completely correspond to its concept. Its value would not need to be replaced, since it would subsist in an indestructible materiality. Since fixed capital is employed only in so far as its value is smaller than that which it posits, the surplus value realised in circulating capital would — even though fixed capital itself never entered [in a single act] as value into circulation — nevertheless soon replace the advances and once the cost of the fixed capital to the capitalist, and that of the surplus labour which he appropriates, were=0, the fixed capital would operate as positing value. It would continue to operate as a productive force of labour, and at the same time be money in the third sense, constant value-for-itself.

Assume a capital of £1,000. Let '/s be machinery, and let the sum of surplus value be 50. The value of the machinery therefore equals 200. After 4 turnovers, the machinery would be paid for. Then, apart from continuing to possess £200 worth of objectified labour in the machinery, the capitalist would, from the fifth turnover onwards, be in the same position as if he was gaining 50 with a capital which cost him only 800, i.e. his gain would be 6l/^[4]% instead of 5%.

As soon as fixed capital enters into circulation as value, it ceases to be use value for the valorisation process of capital; or it enters into circulation only when that process ceases. Therefore, the more durable fixed capital is, [i.e.] the less it needs to be repaired, to be entirely or partly reproduced, [i.e.] the longer its circulation time — the more does it operate as a productive force of labour, as capital, i.e. as objectified labour which posits living surplus labour. The durability of fixed capital, identical with the duration of the circulation time of its value or of the time required for its reproduction, emerges as its value-moment from its very concept. (That this durability in and for itself, in merely material terms, is implicit in the concept of the means of production, needs no explanation.)// The rate of surplus value is simply determined by the ratio of surplus labour to necessary labour; the rate of profit is determined by the ratio, not merely of surplus labour to necessary labour, but of the part of capital exchanged for living labour to the total capital that enters into production.

Concretely expressed, profit, in the form in which we are still considering it, i.e. as the profit of capital as such, not that gained by an individual capital at the expense of another, but as the profit of the capitalist class, can never be greater than the sum of surplus value. As a sum, it is the sum of surplus value, but this very sum of value as a proportion of the total value of capital, not of the part of it whose value actually increases, i.e. is exchanged for living labour. In its immediate form, profit is merely the sum of surplus value expressed as a proportion of the total value of capital.

The transformation of surplus value into the form of profit, this method of calculation of surplus value by capital, much as it is based on an illusion as to the nature of surplus value, or rather disguises it, is necessary from the standpoint of capital.

//It is easy to imagine that the machine as such posits value, since it operates as a productive force of labour. However, if the machine needed no labour, it could of course increase use value, but the exchange value which it produced would never be greater than its own production costs, its own value, the labour objectified in it. It produces value not because it replaces labour, but only in so far as it is a means of increasing surplus labour, and it is only surplus labour itself — and hence labour in general — that is both the measure and the substance of the surplus value posited with the help of the machine.//

The reduction of necessary labour relative to surplus labour is expressed, if we consider the day of an individual worker, in the appropriation of a larger part of the working day by capital. Here the living labour which is employed remains the same. Assume that, because of an increase in productive power, resulting, e.g., from the employment of machinery, 3 of 6 workers who each worked 6 days a week are made superfluous. If the 6 workers themselves possessed the machinery, they would now work for only half a day each. Now 3 continue to work for the whole day each day of the week. If capital continued to employ the 6, they would each work for only half a day, but perform no surplus labour. Assume that necessary labour previously amounted to 10 hours and surplus labour to 2 hours daily; in this case, the total surplus labour performed by the 6 workers was previously equal to 2x6 hours daily, i.e. to one whole day, and hence over the whole week to 6 days, or 72 hours. Each worked one day a week gratis. It would be the same as if the 6th worker had worked for the whole week gratis. The 5 workers represent necessary labour; and if their number could be reduced to 4, and the one worker work for nothing, as before, relative surplus value would have grown. Previously, its ratio was 1 :6; now it would be 1:5. Hence, the former law, stipulating an increase in the number of surplus working hours, now assumes the form of a stipulation to reduce the number of necessary workers. If it were possible for the same capital to employ the 6 workers at this new rate, surplus value would increase not merely relatively but absolutely as well. The surplus labour time would amount to 14^[2]/^[5] hours. 2/5 hours each worked by 6 workers is of course more than 2^[2]/^[5] hours each worked by 5.

As far as absolute surplus value is concerned, it appears to be determined by the absolute extension of the working day beyond the necessary labour time. Necessary labour time works merely for use value, for subsistence. The surplus working day is labour for exchange value, for wealth. It is the first moment of industrial labour. The natural limit is set — assuming that the conditions for labour are available, i.e. raw material and instrument of labour; or one of the two, according to whether labour is merely extractive or form-giving, i.e. whether it merely isolates the use value from the body of the Earth or forms it — the natural limit is set by the number of simultaneous working days or of living labour capacities, i.e. by the magnitude of the working population. At this stage, the difference between production based on capital and earlier stages of production is still a merely formal one. Kidnapping, slavery, trading in slaves and compelling them to labour, [VII-23] increase in the number of these labouring machines, machines producing SURPLUS PRODUCE, is here direcdy posited by force. In the case of capital, it is mediated by exchange.

Here use values increase in the same simple proportion as exchange values, and therefore this form of surplus labour appears in the modes of production of slavery, serfdom, etc., which are mainly and predominantly concerned with use value, and also in that of capital, which is direcdy orientated towards exchange value and only indirectly towards use value. This use value may be purely fantastic, as, e.g., in the construction of Egyptian pyramids, in short the religious luxury-works which the bulk of the nation were compelled to perform in Egypt, India, etc., or it may take the form of immediately useful objects, as, e.g., among the ancient Etruscans.

The second form of surplus value, as relative surplus value, appears as a development of the productive power of the workers, in relation to the working day—as a reduction of necessary labour time, and in relation to population — as a reduction of the necessary working population (this is the antithetical form). In this form [of surplus value], the industrial and distinctively historical character of the mode of production based upon capital is, by contrast, immediately apparent.

To the first form corresponds the forcible transformation of the greater part of the population into wage labourers, and the discipline which transforms their existence into that of mere labourers. E.g., over a period of 150 years, from the time of Henry VII onwards, written in blood in the annals of English legislation is a series of coercive measures which were applied to transform into free wage labourers the mass of the population who had become propertyless and free. The abolition of the institution of retainers, the confiscation of the Church estates, the abolition of the guilds and the confiscation of their property, the forcible eviction of the population from the land by the conversion of arable into pastures, ENCLOSURES OF COMMONS, etc., had posited the labourers as mere labour capacity. But, OF COURSE, at this stage they preferred vagabondage, beggary, etc., to wage labour, and had first to be forcibly broken in to it. A similar process took place with the introduction of large-scale industry, of factories in which production was carried on with machinery. Cf. Owen.^[11]

Only at a certain stage of the development of capital does the exchange between capital and labour IN FACT become a formally free one. It can be said that, in England, wage labour was fully realised in a formal sense only at the end of the 18th century, with the abolition of the LAW OF APPRENTICESHIP.⁽¹³⁾

The tendency of capital is, OF COURSE, to link absolute surplus value with relative; hence the greatest possible extension of the working day and the maximum number of simultaneous working days, accompanied by the reduction to the minimum, on the one hand, of necessary labour time and, on the other, of the necessary number of workers. This contradictory demand, whose development will be seen to manifest itself in different forms as overproduction, overpopulation, etc., asserts itself in the form of a process in which the contradictory determinations alternate in time. A necessary consequence of this is the greatest possible diversification of the use value of labour—or of the branches of production. Thus the production of capital, while on the one hand constantly and necessarily developing the intensity [of the] productive power of labour, on the other hand produces a limitless variety of branches of labour, i.e., therefore, the greatest possible wealth of forms and content of production, subjecting to it all aspects of Nature.

Since the increase in productive power is, in large-scale production, the spontaneous product of the division and combination of labour, savings on certain outlays — conditions for the labour process — which remain the same or are reduced in case of communal operation, such as heating, etc., factory buildings, etc., it does not cost capital anything; it acquires this increased productive power of labour gratis.

If productive power increased simultaneously in the production of the various conditions of production — raw material, means of production and means of subsistence — and in [the branches of production] determined [by them], its increase would not bring about any change in the relation between the different components of capital. If the productive power of labour increased simultaneously in, e.g., the production of flax, weaving-looms and weaving itself (through division of labour), the greater quantity woven in a day would be matched by the greater quantity of raw material, etc. When labour becomes more productive in the extractive industries, e.g. mining, there is no need for an increased supply of raw material, since no raw material is worked up [in these industries]. To increase the productivity of agriculture, it is not EVEN necessary that the number of INSTRUMENTS should be raised, but merely that they should be concentrated and that labour, which was previously performed by hundreds of people working individually, should be carried on communally. But what is needed for all forms of surplus labour is growth of population: of the working population for the first form; of the population in general for the second, since it requires the development of science, etc. Population therefore appears here as the basic source of wealth.

But in the form in which we consider capital initially, the raw material and instrument appear to originate from circulation, not as produced by capital itself; and in reality the individual capital does obtain the conditions for its production from circulation, although these are themselves produced by capital, but by another capital. The consequence of this is, on the one hand, the necessary tendency of capital to seek to dominate the whole range of production; its tendency to posit the production of the materials of labour or of the raw materials and also of the instruments as likewise produced by capital, even if by another capital — the propagandistic tendency of capital.

Secondly, however, it is clear that if the objective conditions of production obtained by capital from circulation remain the same in value, i.e. the same quantity of labour is objectified in the same quantity of use value, a smaller part of capital may be expended on living labour, i.e. the proportion of the component parts of capital changes. Suppose that ^[2]/^[5] of a capital of 100 is raw material, V5 is instrument, and ^[2]/s is labour. Suppose, too, that in consequence of a doubling of the productive power (resulting from division of labour), the same quantity of labour employing the same instrument could work up double the amount of raw material. The capital would then have to increase by 40, i.e. a capital of 140 would have to work, of which 80 would be raw material, 20 instrument, and 40 labour.

The proportion of labour would now be 40: 140 (previously 40: 100); previously it was 4: 10, now only 4 : 14.

Or, if the capital remained the same, 100, ^[3]/^[5] would now be raw material, V5 instrument and ^[1]/^[5] labour. The gain would be 20, as before. But surplus labour would now be 100%, whereas previously it was 50%. The capitalist now needs only 20 labour for 60 raw material and 20 instrument. 80. | 20. | 100. |

A capital of 80 yields him a profit of 20. Hence, if the capital employed the total amount of labour at this stage of production, it would have to grow to 160, composed of 80 raw material, 40 instrument and 40 labour. This would yield a surplus value of 40. At the stage initially assumed, where a capital of 100 yields a surplus value of only 20, a capital of 160 would yield a surplus value of only 32, i.e. 8 less, and the capital would have to grow to 200 in order to produce the same surplus value of 40.

The following cases are to be distinguished between: (1) Labour (the intensity, speed of labour) increases, but this does not necessitate greater advances in material or instrument of labour. E.g., owing to an increase in skills, better combination and division of labour, etc., the same 100 workers with instruments of the same value catch more fish, or till the soil better, or extract more ore or coal from the mines, or beat out more foil from the same quantity of gold, or waste less raw material, i.e. produce more with the same value-quantity of raw material. If, in this case, their products themselves enter into their consumption, their necessary labour time will diminish; they will do more work at the same [VII-24] maintenance costs. Or a smaller part of their labour is necessary to reproduce their labour capacity. The necessary part

7* of labour time is reduced relatively to the surplus labour time; and although the value of the product remains the same, 100 working days, the portion accruing to capital, surplus value, is increased. If total surplus labour was previously Vio, i.e. 10 working days, and if now it is Vs, surplus labour time has increased by 10 days. The workers now work 80 days for themselves and 20 for the capitalist, while in the first case they worked 90 for themselves and only 10 for the capitalist. (This method of calculation, in terms of working days, and with labour time as the sole substance of value, is so openly manifest where relations of bondage exist. In the case of capital, it is concealed by the veil of money.) A greater portion of the newly produced value accrues to capital. But the relations between the different components of the invariable capital remain, by assumption, the same. I.e., although the capitalist employs a larger volume of surplus labour, because he pays less in wages, he does not employ more capital in raw materials and instruments. He exchanges a smaller part of objectified labour for the same quantity of living labour, or the same quantity of objectified labour for a greater quantity of living labour. This is only possible in the extractive industries; in the manufacturing industries, in so far as the raw material is used more economically; further, in agriculture, in which the material is increased by chemical processes; and in the transport industries.

(2) Productivity increases not merely within a particular branch of production but, at the same time, in [the industries which produce] its prerequisites; in this CASE an intensification of labour or a rise in the quantity of products it turns out in a given time necessitates an increase in the quantity of raw material or instrument or both. (The raw material need not cost anything, e.g. rushes for wickerwork; wood which costs nothing, etc.) In this case, the proportion [between the parts] of capital would remain the same. I.e., the increased productivity of labour does not make capital expend any greater value in raw material or instrument.

(3) The increased productivity of labour necessitates the expenditure of a larger part of capital on raw material and instrument. If it is merely due to the division of labour, etc., that a given number of workers have become more productive, the instrument remains the same; only the raw material must increase, since in the same period of time the same number of men work up a greater quantity of raw material, and, by assumption, the greater productivity derives only from an increase in the workers' skill, division and combination of labour, etc. In this case, the part of capital exchanged for living labour falls (it remains the same if absolute labour time alone increases, and it diminishes if relative labour time increases) relative to the other components of capital, which remain the same, and it does so not only by the amount of its own fall, but just as much by the amount of the increase in relative labour time. Let us consider this:

Raw Instrument Labour s material Working days 180 90 80 10 41l3/^[7] 90 70 20

In the first case, 10 of the 90 working days are surplus working days; surplus labour is 1272%- I n the second case, the proportion of raw material has risen to the same extent as has the proportion of surplus labour, compared with the first case [180:411^[3]/^[7]='/8:^[2]/7]-

If an increase in surplus value presupposes, in all cases, an increase in population, the present case also presupposes accumulation or the entry of a larger capital into production. (In the final analysis this also implies a larger working population employed in the production of raw materials.) In the first case, the total part of capital expended on labour constitutes XU of the total capital, and its ratio to the constant part of capital is 1:3. In the second case, the total part expended on labour is less than ^[1]/^[6] of the total capital, and its ratio to the constant part of capital is not even 1: 5. Although an increase in productive power resulting from the division and combination of labour is therefore based upon an absolute increase of the labour power employed, it is necessarily linked with a reduction in it relative to the capital which sets it in motion. And if in the first form, that of absolute surplus labour, the quantity of labour employed must increase in the same proportion as the capital employed, in the second case it increases in a lesser proportion, its growth being inversely related to that of productive power.

If the productivity of the soil were doubled by applying the latter method in agricultural labour, so that the same quantity of labour yielded 1 QUARTER of wheat instead of V2» necessary labour would decline by V2, and capital could employ twice as many labourers with the same wages. (This expressed only in terms of corn.) But suppose he [the farmer] would not need any additional labourers for the cultivation of his land. In that case, he will employ the same amount of labour with half the previous wages. A part of his capital, that previously expended in money, is set free. The labour time employed has remained the same in proportion to the capital employed, but the surplus part of labour time has risen relative to the necessary part. If necessary labour was previously ^[3]/^[4] of the total working day, or 9 hours, it is now ^[3]/^[8] of it, or 4V2 hours. The surplus value was 3 hours in the first case; in the second, it=772-

The process is as follows: With a given working population and duration of the working day, i.e. the duration of the working day multiplied by the number of simultaneous working days, surplus labour can only be increased relatively, by raising the productive power of labour, the possibility of which is already posited by the presupposed growth of the population and TRAINING TO LABOUR (this also posits a certain amount of free time for non-working population, population which does not work directly; hence development of mental capacities, etc.; mental appropriation of nature). Given a certain level of development of the productive forces, surplus labour can only be increased absolutely, by turning a larger part of the population into workers, with a consequent increase in the number of simultaneous working days. The first process relatively reduces the relative working population, although it remains the same in absolute terms; the second increases it Both tendencies are necessary tendencies of capital. The unity of these contradictory tendencies, hence the living contradiction, is only given with machinery, which we shall discuss presently. The second form obviously permits of only a small proportion of non-working to working population. The first form, since the quantity of living labour required under it increases more slowly than the quantity of capital employed, permits of a larger proportion of non-working to working population.

In the process by which capital becomes capital, its different component parts appear in a particular relationship to one another, with capital obtaining the raw material and instrument, the prerequisites of the product, from circulation and relating to them as to its given presuppositions. On closer inspection, it is true, this relationship disappears, for all the moments appear as equally produced by capital, since otherwise it would not have subjected to itself the totality of the conditions of its production. Yet for the individual capital, its components always remain in the same relationship. A part of it may therefore always be considered as constant value, and it is only the part laid out in labour that varies. These components do not develop evenly, but, as will be seen in the analysis of competition, it is the tendency of capital to distribute productive power evenly.

[VII-25] Since the increasing productivity of labour would cause capital to come up against a barrier in the form of the non-increasing volume of raw material and machinery, it is the normal course of industrial development that, the more production is production of raw materials for industry, raw material both for the material of labour and [for] the instrument, and the more the material of labour approximates to mere raw material, the more likely it is that the large-scale introduction of [wage] labour and the employment of machinery will begin precisely in these branches. E.g., in spinning earlier than in weaving, in weaving earlier than in printing, etc. Earliest of all in the production of metals, which are the main raw material for the instruments of labour themselves. If the raw product proper which supplies the raw material of industry at the nethermost stage cannot be rapidly increased itself, recourse is had to a substitute whose output can be increased more rapidly. (Cotton for linen, wool and silk.) The same thing happens as regards means of subsistence, when the potato is substituted for grain. In the latter case, productivity is raised by producing an inferior article, one with a lower content of blood-forming substances and hence requiring cheaper organic conditions for its reproduction. This, the latter, belongs in the analysis of wages. We must not forget Rumford⁽¹⁴⁾ when discussing the minimum of wages.

We now come to the third CASE of relative surplus labour, as it is manifested in the employment of machinery.

//In the course of our presentation, it has become evident that value, which appeared as an abstraction, is possible only as such an abstraction as soon as money is posited. On the other hand, money circulation leads to capital, and hence can only be completely developed on the basis of capital; and in general, it is only on the basis of capital that circulation can draw within its sphere all the moments of production. Hence, in the course of analysis, not only does the historical character of forms which belong to a definite historical epoch, e.g. capital, become evident, but determinations like value, which appear to be purely abstract, show the historical basis from which they have been abstracted, and on which alone they therefore can appear in this abstraction. And such determinations as plus ou moins* belong to all epochs, e.g. money, show the historical modification which they undergo. The economic concept of value does not occur among the ancients. Value as distinct from pretium⁽¹⁵⁾ was a purely legal category, invoked against fraud, etc. The concept of value wholly belongs to the latest political economy, because that concept is the most abstract expression of capital itself and of the production based upon it. In the concept of value, the secret of capital is betrayed.//

What distinguishes surplus labour based on machinery is the diminution of necessary labour time, which is used in such a way that fewer simultaneous working days, fewer workers are employed. The second moment is that the increase in productive power itself must be paid for by capital, that it is not obtained gratis. The means by which this increase in productive power is brought about is itself objectified immediate labour time, value; and to get hold of it, capital must exchange a part of its value for it. It is easy to derive the advent of machinery from competition and the law of the reduction of the production costs which it imposes. But here it is a matter of deriving it from the relation of capital to living labour, without bringing in other capital.

Suppose a capitalist previously employed 100 workers in cotton spinning at an annual cost of £2,400. Now he replaces 50 workers by a machine worth £1,200. If the machine were likewise completely used up in a year and had to be replaced at the beginning of the second year, he would obviously gain nothing; nor would he be able to sell his products more cheaply. The remaining 50 workers would perform the same amount of work as the 100 did previously; the surplus labour time of each individual worker would increase in the same proportion as the number of workers declined, and hence [total surplus labour time] would remain the same. If it was previously =200 hours a day, i.e. 2 hours on each of the 100 working days, it would now be likewise=200 hours, i.e. 4 hours on each of the 50 working days. The amount of surplus time per worker would increase; for capital things would remain unchanged, since it would now have to exchange 50 working days (necessary and surplus time together) for the machine. The 50 objectified working days which it exchanged for the machinery would merely give it an equivalent, and hence no surplus time, as though it had merely exchanged 50 objectified working days for 50 living. However, this would be made up for by the surplus labour time of the remaining 50 workers. Divested of the form of exchange, it would be the same as if the capitalist set 50 workers to work whose entire day's labour constituted necessary labour, while at the same time employing another 50 workers whose working day compensated him for this "loss".

But suppose the machine only cost £960, i.e. only 40 days' labour, and each of the remaining workers continued to perform 4 hours surplus labour time, hence 200 hours or 16 days 8 hours (16^[2]/^[3] days). The capitalist would then have saved £240 in outlays. But whereas previously he gained 16 days 8 hours on an outlay of 2,400, he would now gain the same 200 working hours on an outlay of only 960. 200 to 2,400=1:12; in comparison, 200:2,160=20 :216=1 : 10^[4]/^[5]. His gain, expressed in working days, would in the first case be 16 days 8 hours per 100 working days; in the second, the same amount per 90; in the first, 200 on the 1,200 hours of labour worked daily; in the second, 200 on 1,080. 200: 1,200=1 :6; 200: 1,080=1:5^[2]/^[5]. In the first case, the surplus time of the individual worker='/^[6] working day=2 hours. In the second, it is 2^[6]/27 hours per 1 working day. One should add that, if machinery is employed, the part of capital which was previously employed in instruments must be deducted from the extra cost occasioned by the machinery.

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Endnotes

(1) Here S means surplus value, Z—period of time, p—production phase, c—phase of circulation, U—turnover.— Ed.

a "Sub specie aeternitatis"—"under the aspect of eternity" (Spinoza, Ethics, Part II, Proposition 44, Corollary 2; Part V, Propositions 22-36).— Ed. b See present edition, Vol. 28, pp. 291-328.— Ed.

[20] Thomas Hodgskin's pamphlet Labour Defended against the Claims of Capital, London, 1825, p. 16 contains the following: "One easily comprehends why ... the road-maker should receive some of the benefits, accruing only to the road-user; but I do not comprehend why all these benefits should go to the road itself, and be appropriated by a set of persons who neither make nor use it, under the name of profit for their capital."—89

(2) A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book 1, Ch. 9.— Ed.

(3) D. Ricardo, On the Principles of Political Economy, and Taxation, Ch. 21.— Ed.

•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

(4) E. G. Wakefield, A View of the Art of Colonization, London, 1849, pp. 76, 79 and 91.— Ed.

(5) Simply and plainly.— Ed.

(6) See present edition, Vol. 28, pp. 5-16.— Ed.

(7) Marx quotes this and the following passage, and also the table, in French.— Ed.

[29] This alludes to the proposal made by Dr. Richard Price, the British economist and writer of the second half of the eighteenth century, that the state should borrow money at simple interest and grant credits at compound interest. On the basis of this proposal, in 1786 the government of William Pitt Jr. tried to form a special sinking fund to defray the growing public debt through credit operations with it. This attempt did not, however, alleviate the financial difficulties, but caused serious complications in the sphere of the state credit. For details, see Chapter XXIV of Volume III of Capital, Marx's article "Mr. Disraeli's Budget", written in April 1858 (present edition, Vol. 15), and Vol. 28, p. 298.—140

(8) Crossed out in the manuscript: "In any case, if the rate of profit declines, it must decline in relation to something, and this something is capital itself." — Ed.

(9) See present edition, Vol. 28, pp. 11-15, 180-82 and 248.— Ed.

(10) Let us return to our subject.— Ed.

(11) From another point of view.— Ed.

(12) J. St. Mill, Principles of Political Economy, Vol. 1, London, 1848, pp. 25, 26, 239, 240.— Ed.

[30] Marx used the term "production costs" in the sense of "the immanent production costs of the commodity, which are equal to its value" (see Note 23). At the same time, however, he gives below another interpretation of the term "production costs of capital", excluding the surplus value embodied in the commodity, appropriated by the capitalist in the production process and realised in circulation.—144 .

[11] The reference is to Excerpt Notebook IX (London, mid-May-mid-June 1851).—31, 52, 79, 137, 145, 167, 169

(13) See this volume, pp. 98-99.— Ed. 7-785

[8] In the 1857-1858 manuscript Marx as a rule uses the term "Arbeitsvermögen" (labour capacity), hut in some cases "Arbeitskraft" (labour power). In Capital, Vol. I, Ch. VI, he treats the two terms as identical: "By labour-power or capacity for labour is to be understood the aggregate of those mental and physical capabilities existing in a human being, which he exercises whenever he produces a use-value of any description" (see present edition, Vol. 35).—29, 63

(14) More or less.— Ed.

(15) Price.— Ed.

[2] Marx dealt with the circuit and turnover of capital in the preceding part of Section Two of the "Chapter on Capital" (see present edition, Vol. 28, pp. 439-72), but then he interrupted his exposition of these problems and wrote a section about bourgeois theories of surplus value and profit (see Vol. 28, pp. 473-537). He did, however, return to the topic.— 7

[3] In his manuscript, to denote these categories Marx uses mostly the French terms "capital circulant" and "capital fixe", but sometimes he also uses the German ones "zirkulierendes Kapital" and "fixiertes Kapital", or the English "circulating capital", "floating capital", and "fixed capital".— 9, 201, 515, 526

[4] This refers to the discovery of rich deposits of gold in Australia in 1851. The development of these deposits, alongside the extraction of gold discovered in California in 1848, spurred industrial and stock-exchange activity in capitalist countries.—11, 265

[5] The reference is to the 1845 Brussels Excerpt Notebook. Other quotations from Storch are on pages 26, 34-35 of this notebook.— 24, 118

[6] When speaking about circulation between dealers, and that between dealers and consumers, Marx has in mind Adam Smith's division of the whole circulation into these two different branches (see Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations, Vol. II, Book II, Ch. II).—27, 65

[1] This is the concluding part of Marx's economic manuscript of 1857-1858. Consisting of seven large notebooks, which Marx numbered I-VII, the manuscript is the first rough draft of Capital. On the cover of the last, seventh, notebook, Marx wrote Political Economy, Criticism of in English and "Fortsetzung [Continuation]" in German. This implies that Notebook VII is a continuation of the preceding six notebooks and that Marx did not consider it to be the concluding one. The words Political Economy, Criticism of can be regarded as the author's title for the whole manuscript. The words "rough draft" are taken from Marx's letter to Engels of November 29, 1858 in which Marx calls his economic manuscript of 1857-1858 a Rohentwurf (Rough Draft). The manuscript is, indeed, a rough draft, for it is unfinished and breaks off in mid-sentence. A major part of the manuscript is included in Volume 28 of the present edition and begins with Chapter II—"Chapter on Money", followed by a long third chapter, "Chapter on Capital". Notebook VII contains the conclusion ot this chapter, followed by fragments intended as additions to the two chapters — on money and on capital. The Economic Manuscript of 1857-1858 is being published in the sequence given by Marx. The numbers of the notebooks are indicated in Roman numerals and the pages in Arabic ones, in square brackets. The square brackets in the manuscript are, therefore, replaced by oblique lines. Some passages have been transposed — as indicated by Marx in the manuscript or where there are obvious additions relevant to the preceding text. All such cases are mentioned in the footnotes, which also indicate passages crossed out by Marx and sometimes reproduce them. Where Marx, in quoting, gives references to pages of his excerpt notebooks, these have been supplemented, in brackets, with references to the pages of the editions Marx used. Where he merely gives the authors' names, the titles of the quoted works have been supplied. Foreign words and expressions, including Greek and Latin, are preserved when the author used them for stylistic or terminological purposes. English phrases, expressions and separate words are given in small caps. Quotations from English sources are given according to the editions used by the author. In all cases the form in which Marx quoted is respected. The language in which Marx quotes is indicated, unless it is German. The manuscript was first published in full in the language of the original (German) in Karl Marx, Grundrisse der Kritik der politischen Oekonomie (Rohentwurf). 1857-1858, Moscow, 1939-41 and reproduced by Dietz Verlag, Berlin, in 1953. In English, the manuscript was published in full in Karl Marx, Grundrisse. Foundations of the Critique of Political Economy (Rough Draft). Translated with a foreword by Martin Nicolaus. Penguin Books in association with New Left Review, London, 1973. Separate extracts had been published previously in Marx's Grundrisse, ed. David McLellan, Macmillan Press Ltd., London, 1971.—Title-page

[7] Marx has in mind Notebook XVI of the 24 notebooks of excerpts on political economy he made in the early 1850s. The notebook contains excerpts from Gratuité du crédit. Discussion entre M. Fr. Bastiat et M. Proudhon, Paris, 1850. Proudhon's formula on the surplus added by labour is to be found on p. 200 of this book, as well as in Proudhon's Système des contradictions économiques, ou Philosophie de la misère, Vol. I, Paris, 1846, p. 73. Cf. present edition, Vol. 28, p. 531. For criticism of this formula, see also Marx's work The Poverty of Philosophy (present edition, Vol. 6, pp. 152-60).—29