Chapter VI. The Effect of Price Fluctuations
The assumption in this case, as in previous ones, is that no change takes place in the rate of surplus value. It is necessary to analyse the case in its pure form. However, it might be possible for a specific capital, whose rate of surplus value remains unchanged, to employ an increasing or decreasing number of labourers, in consequence of contraction or EXPANSION caused by such fluctuations in the price of raw materials as we are to analyse here. In that case the quantity of surplus value might vary, while the rate of surplus value remains the same. Yet this should also be disregarded here as a side-issue. If improvements of machinery and changes in the price of raw materials simultaneously influence either the number of labourers employed by a definite capital, or the level of wages, one has but to put together 1) the effect caused by the variations of constant capital on the rate of profit, and 2) the effect caused by variations in wages on the rate of profit. The result is then obtained of itself.
But in general, it should be noted here, as in the previous case, that if variations take place, either due to savings in constant capital, or due to fluctuations in the price of raw materials, they always affect the rate of profit, even if they leave the wage, hence the rate and amount of surplus value, untouched. They change the magnitude of
V C in s 7, , and thus the value of the whole fraction. It is therefore immaterial, in this case as well — in contrast to what we found in our analysis of surplus value — in which sphere of production these variations occur; whether or not the production branches affected by them produce necessities for labourers, or constant capital for the production of such necessities. The deductions made here are equally valid for variations occurring in the production of luxury articles, and by luxury articles we here mean all production that does not serve the reproduction of labour power.
The raw materials here include auxiliary materials as well, such as indigo, coal, gas, etc. Furthermore, so far as machinery is concerned under this head, its own raw material consists of iron, wood, leather, etc. Its own price is therefore affected by fluctuations in the price of raw materials used in its construction. To the extent that its price is raised through fluctuations, either in the price of the raw materials of which it consists, or of the auxiliary materials consumed in its operation, the rate of profit falls pro tanto. And vice versa.
In the following analysis we shall confine ourselves to fluctuations in the price of raw materials, not so far as they go to make up the raw materials of machinery serving as means of labour or as auxiliary materials applied in its operation, but in so far as they are raw materials entering the process in which commodities are produced. There is just one thing to be noted here: the natural wealth in iron, coal, wood, etc., which are the principal elements used in the construction and operation of machinery, presents itself here as a natural fertility of capital and is a factor determining the rate of profit irrespective of the high or low level of wages.
Since the rate of profit is ^r, or c_jrv~, it is evident that everything causing a variation in the magnitude of c, and thereby of C, must also bring about a variation in the rate of profit, even if s and v, and their mutual relation, remain unaltered. Now, raw materials are one of the principal components of constant capital. Even in industries which consume no actual raw materials, these enter the picture as auxiliary materials or components of machinery, etc., and their price fluctuations thus pro tanto influence the rate of profit. Should the price of
S S S raw material fall by an amount = d, then ^ , or c_pv , becomes ^— d , or ,—^ ,-,-, . Thus, the rate of profit rises. Conversely, if the price of raw material rises, then 77 > or -—r., ' becomes >-,V ; ' o r 1 T~J\ . " ' a n d
' C c-t-v C + d (c + d ) + v the rate of profit falls. Other conditions being equal, the rate of profit, therefore, falls and rises inversely to the price of raw material. This shows, among other things, how important the low price of raw material is for industrial countries, even if fluctuations in the price of raw materials are not accompanied by variations in the sales sphere of the product, and thus quite aside from the relation of demand to supply. It follows furthermore that foreign trade influences the rate of profit, regardless of its influence on wages through the cheapening of the necessities of life. The point is that it affects the prices of raw or auxiliary materials consumed in industry and agriculture. It is due to an as yet imperfect understanding of the nature of the rate of profit and of its specific difference from the rate of surplus value that, on the one hand, economists (like Torrens(1)) wrongly explain the marked influence of the prices of raw material on the rate of profit, which they note through practical experience, and that, on the other, economists like Ricardo,b who cling to general principles, do not recognise the influence of, say, world trade on the rate of profit.
This makes clear the great importance to industry of the elimination or reduction of customs duties on raw materials. The rational development of the protective tariff system made the utmost reduction of import duties on raw materials one of its cardinal principles. This, and the abolition of the duty on corn,[22] was the main object of the English FREE-TRADERS, who were primarily concerned with having the duty on cotton lifted as well.
The use of flour in the cotton industry may serve as an illustration of the importance of a price reduction for an article which is not strictly a raw material but an auxiliary and at the same time one of the principal elements of nourishment. As far back as 1837, R. H. Greg '[3]» calculated that the 100,000 power-looms and 250,000 hand-looms then operating in the cotton-mills of Great Britain annually consumed 41 million lbs of flour to smooth the warp. He added a third of this quantity for bleaching and other processes, and estimated the total annual value of the flour so consumed at £342,000 for the preceding 10 years. A comparison with flour prices on the continent showed that the higher flour price forced upon manufacturers by corn tariffs alone amounted to £ 170,000 per year. Greg estimated the sum at a minimum of £200,000 for 1837 and cited a firm for which the flour price difference amounted to £1,000 annually. As a result,
"great manufacturers, thoughtful, calculating men of business, have said that ten hours' labour would be quite sufficient, if the Corn Laws were repealed" (Reports of Insp. of Fact., Oct. 1848, p. 98).
The Corn Laws were repealed. So were the duties on cotton and other raw materials. But no sooner had this been accomplished than the opposition of the manufacturers to the Ten Hours' Bill[2] [3] became more violent than ever. And when the ten-hour factory day nevertheless became a law soon after, the first result was a general attempt to reduce wages.
The value of raw and auxiliary materials passes entirely and all at one time into the value of the product in the manufacture of which they are consumed, while the elements of fixed capital transfer their value to the product only gradually in proportion to their wear and tear. It follows that the price of the product is influenced far more by the price of raw materials than by that of fixed capital, although the rate of profit is determined by the total value of the capital applied no matter how much of it is consumed in the making of the product. But it is evident — although we merely mention it in passing, since we here still assume that commodities are sold at their values, so that price fluctuations caused by competition do not as yet concern us — that the expansion or contraction of the market depends on the price of the individual commodity and is inversely proportional to the rise or fall of this price. It actually develops, therefore, that the price of the finished product does not rise in proportion to that of the raw material, and that it does not fall in proportion to that of raw material. Consequently, the rate of profit falls lower in one instance, and rises higher in the other than would have been the case if commodities were sold at their value.
Further, the quantity and value of the employed machinery grows with the development of the productive power of labour but not in the same proportion as this productive power, i. e., not in the proportion in which this machinery increases its output. In those branches of industry, therefore, which do consume raw materials, i.e., in which the subject of labour is itself a product of previous labour, the growing productive power of labour is expressed precisely in the proportion in which a larger quantity of raw material absorbs a definite quantity of labour, hence in the increasing amount of raw material converted in, say, one hour into products, or processed into commodities. The value of raw material, therefore, forms an ever-growing component of the value of the commodity product in proportion to the development of the productive power of labour, not only because it passes wholly into this latter value, but also because in every aliquot part of the aggregate product the portion representing depreciation of machinery and the portion formed by the newly added labour— both continually decrease. Owing to this falling tendency, the other portion of the value representing raw material increases proportionally, unless this increase is counterbalanced by a proportionate decrease in the value of the raw material arising from the growing productivity of the labour employed in its own production.
Further, raw and auxiliary materials, just like wages, form parts of the circulating capital and must, therefore, be continually replaced in their entirety through the sale of the product, while only the depreciation is to be renewed in the case of machinery, and first of all in the form of a reserve fund. It is, moreover, in no way essential for each individual sale to contribute its share to this reserve fund, so long as the total annual sales contribute their annual share. This shows again how a rise in the price of raw material can curtail or arrest the entire process of reproduction if the price realised by the sale of the commodities should not suffice to replace all the elements of these commodities. Or, it may make it impossible to continue the process on the scale required by its technical basis, so that only a part of the machinery will remain in operation, or all the machinery will work for only a fraction of the usual time.
Finally, the expense incurred through waste varies in direct proportion to the price fluctuations of the raw material, rising when they rise and falling when they fall. But there is a limit here as well. In 1850 it was still maintained:
"One source of considerable loss arising from an advance in the price of the raw material would hardly occur to any one but a practical spinner, viz., that from waste. I am informed that when cotton advances, the cost to the spinner, of the lower qualities especially, is increased in a ratio beyond the advance actually paid, because the waste made in spinning coarse yarns is fully 15 per cent; and this rate, while it causes a loss of~2 d. per lb. on cotton at 3 [2]~d. per lb., brings up the loss to Id. per lb. when cotton advances to 7d" (Reports of Insp. of Fact., April 1850, p. 17).
But when, as a result of the American Civil War, the price of cotton rose to a level unequalled in almost 100 years, the report read differently:
"The price now given for waste, and its re-introduction in the factory in the share of cotton waste, go some way to compensate for the difference in the loss by waste, between Surat cotton and American cotton, about 12 [2] P e r cent.
"The waste in working Surat cotton being 25 per cent, the cost of the cotton to the spinner is enhanced one-fourth before he has manufactured it. The loss by waste used not to be of much moment when American cotton was 5d. or 6d. per lb., for it did not
[3] exceed [4] d. per lb., but it is now of great importance when upon every lb. of cotton which costs 2s. there is a loss by waste equal to 6d." [14]' (Reports of Insp. of Fact., Oct. 1863, p. 106).
I4) The report errs in the final sentence. Instead of 6d. it should be 3d. for loss through waste. This loss amounts to 25% in the case of Surat, and only 12'/' to 15% in the case of American cotton, and this latter is meant, the same percentage having been correctly calculated for the price of 5 to 6d. It is true, however, that also in the case of American cotton brought to Europe during the latter years of the Civil War the proportion of waste often rose considerably higher than before.— F. E.
Endnotes
[22] High import duties on agricultural produce were imposed by the Corn Laws (first introduced in the fifteenth century) in the interests of the landowners in order to maintain high prices on the home market. See also Note 73.—109, 325
[4] Cf. the contents of Book III of Capital as set forth by Marx in his letter to Engels of April 30, 1868 (ibid., Vol. 43, pp. 21-25).—10
[14] See G. Ramsay, An Essay on the Distribution of Wealth, Edinburgh, London, 1836, pp. 23-24, 49 and 183-84; T. R. Malthus, Principles of Political Economy, London, 1836, p. 268; N.W. Senior, Letters on the Factory Act, London, 1837, pp. 11-17; R.Torrens, An Essay on the Production of Wealth, London, 1821, pp. 344-49. Cf. K. Marx, Economic Manuscript of 1861-63 (present edition, Vol. 33, pp. 72-73). — 48
[3] Since the late 1860s Marx repeatedly asked his correspondents to send him materials on landed property in various countries (see present edition, Vol. 43, pp. 61 and 412). He also informed them that he intended to use this new material to supplement the section on ground rent. Having received numerous statistical reference books and other publications on landed property in Russia from Nikolai Danielson, in particular, and having made a thorough study of them, Marx wrote to his Russian correspondent on December 12, 1872: "In Volume II of Capital I shall, in the section on landed property, deal in great detail with the Russian form" (ibid., Vol. 44, p. 457). This passage, among other excerpts from Marx's letters to him, was quoted by Danielson in his letter to Engels of August 25 (September 6), 1885. He thought they could be used in the preface to Volume III of Capital. See also Engels' letter to Danielson of June 3, 1885 (ibid., Vol. 47, p. 294).—10
[2] As early as 1865, when working on the manuscript Marx planned to have Capital translated into English (see Marx's letter to Engels of July 31, 1865; present edition, Vol. 42, p. 173). Reporter Peter Fox, a member of the British labour movement, was to help him find a publisher. However, he died in 1869, and nothing was settled. The English translation of Volume I of Capital, edited by Engels, appeared after Marx's death, in January 1887 (ibid., Vol. 35). The translation was done by Samuel Moore and Edward Aveling between mid-1883 and March 1886; Eleanor Marx-Aveling assisted in preparing the translation for the press.— 5