Volume 1 looked at what capitalist production shows when we take it on its own — as a direct process of production, setting aside every secondary effect from circumstances outside it. But that direct process of production is not the whole life of capital. In the real world it is completed by the process of circulation, and that process was the subject of Volume 2. There — especially in the third part, where circulation was treated as the medium of society's reproduction process — it became clear that capitalist production, taken as a whole, is the unity of the production process and the circulation process.
This third volume cannot simply offer general reflections on that unity. Its task is to find and set out the concrete forms that grow out of capital's movement, taken as a whole. In their real movement, capitals confront one another in just these concrete forms, in relation to which the shape capital takes in direct production, and the shape it takes in circulation, appear only as particular moments of one larger movement.
So the shapes of capital developed in this volume move step by step closer to the form in which capital appears on the surface of society — in the action of different capitals on one another, that is, in competition — and in the ordinary consciousness of the agents of production themselves.
The value of any commodity produced capitalistically, W, can be written as W = c + v + s. If we subtract the surplus-value, s, from this value of the product, what is left is simply an equivalent — a value in commodity-form that replaces the capital-value, c + v, laid out on the elements of production.
Suppose making a certain article costs a capital outlay of £500: £20 for the wear of the instruments of labour, £380 for raw materials, £100 for labour-power. If the rate of surplus-value is 100%, the value of the product is 400c + 100v + 100s = £600.
Once the £100 of surplus-value is deducted, a commodity-value of £500 remains, and this replaces only the £500 of capital that was laid out. This part of the commodity's value — the part that replaces the price of the means of production used up and the price of the labour-power employed — replaces only what the commodity costs the capitalist himself. That is why, for him, it forms the cost price of the commodity.
What the commodity costs the capitalist and what producing the commodity itself costs are two quite different quantities. The part of the commodity's value made up of surplus-value costs the capitalist nothing — precisely because it costs the worker unpaid labour. But under capitalist production, once the worker has entered the production process he himself becomes part of the productive capital at work — the capital actually in operation in production — which belongs to the capitalist, so the capitalist is the real producer of the commodity. That is why the cost price of the commodity necessarily appears to him as the real cost of the commodity itself.
Call the cost price k, and the formula W = c + v + s turns into W = k + s — that is, value of the commodity = cost price + surplus-value.
Grouping together, under the single heading 'cost price', the different parts of a commodity's value that merely replace the capital laid out in producing it — this grouping expresses, on the one hand, something specific to capitalist production. The capitalist's cost for the commodity is measured by his outlay in capital; the commodity's real cost is measured by the outlay in labour. So the capitalist's cost price for the commodity is quantitatively different from its value, or from its real cost price: it is smaller than the value of the commodity, since if W = k + s, then k = W - s.
On the other hand, the cost price of the commodity is by no means just a heading that exists only in the capitalist's books. This part of the value takes on a life of its own, and it keeps making itself felt in practice in the actual production of the commodity — because it must keep being converted, through circulation, out of commodity-form and back into the form of productive capital: the cost price of the commodity must constantly buy back the elements of production that were used up in making it.
The category of cost price, on the other hand, has nothing whatsoever to do with how the commodity's value is formed, or with capital's process of valorization — the process by which capital's own value expands. If I know that five-sixths of the commodity's value of £600 — that is, £500 — form only an equivalent, a replacement-value, for the £500 of capital laid out, and so are only enough to buy back the material elements of that capital, I still do not know, from that alone, how those five-sixths that make up the cost price were produced, nor how the remaining sixth that makes up the surplus-value was produced. But the investigation ahead will show that, within the capitalist economy, the cost price takes on the false appearance of being itself a category of value-production.
Let's go back to our example. Suppose the value one worker produces in an average social working day is represented by a sum of money of 6 shillings (6 marks). Then the capital advanced, £500 = 400c + 100v, represents the value produced in 1,666⅔ ten-hour working days — of which 1,333⅓ days are crystallized in the value of the means of production, = 400c, and 333⅓ days in the value of the labour-power, = 100v. At the assumed rate of surplus-value of 100%, producing the newly formed commodity itself therefore costs an expenditure of labour-power of 100v + 100s = 666⅔ ten-hour working days.
We know already, from Volume 1, that the value of the newly formed product, £600, is made up of two things: first, the reappearing value of the constant capital laid out on means of production, £400; second, a newly produced value of £200. The cost price of the commodity, £500, contains the reappearing 400c plus one half of the newly produced value of £200 — that is, the 100v. So the cost price is made up of two elements of the commodity's value that come from entirely different origins.
Because the labour expended over those 666⅔ ten-hour days is purposive labour — labour aimed at making this particular thing — the value of the means of production consumed, £400, is transferred from those means of production onto the product. This old value therefore reappears as part of the product's value, but it does not arise in the production process of this commodity: it is part of the commodity's value only because it was already part of the capital advanced. The constant capital laid out is thus replaced by the very part of the commodity's value that it adds to that value.
This element of the cost price has a double sense, then. On one hand, it enters into the cost price of the commodity because it is part of the commodity's value that replaces capital laid out. On the other hand, it forms only a part of the commodity's value because it is the value of capital that was laid out — because the means of production simply cost that much.
With the other component of the cost price, things run exactly the other way. The 666⅔ days of labour expended in producing the commodity form a new value of £200. Of this new value, one part merely replaces the variable capital advanced, £100 — that is, the price of the labour-power employed. But this advanced capital-value plays no part whatsoever in forming that new value.
Within the capital advanced, labour-power counts as a value. But in the production process, it functions as something that forms value. So what actually goes to work in production is not the sum of value entered for labour-power in the capital advanced, but living labour-power itself — and that is what creates value.
The difference between these two kinds of value-component that together make up the cost price becomes obvious the moment either one changes in size — first the constant part, then the variable part.
Suppose the price of the same means of production rises from £400 to £600, or instead falls to £200. In the first case, not only does the cost price of the commodity rise from £500 to 600c + 100v = £700 — the value of the commodity itself rises from £600 to 600c + 100v + 100s = £800. In the second case, not only does the cost price fall from £500 to 200c + 100v = £300 — the value of the commodity itself falls from £600 to 200c + 100v + 100s = £400. Because the constant capital expended transfers its own value onto the product, the value of the product, other things staying the same, rises and falls with the absolute size of that capital-value.
Now assume the reverse: other things staying the same, the price of the same quantity of labour-power rises from £100 to £150, or instead falls to £50. In the first case the cost price does rise, from £500 to 400c + 150v = £550, and in the second case it does fall, from £500 to 400c + 50v = £450 — but in both cases the value of the commodity stays unchanged, at £600: once as 400c + 150v + 50s, the other time as 400c + 50v + 150s.
The variable capital advanced does not add its own value to the product. In the product, its value is replaced by a new value that living labour has created. So a change in the absolute size of the variable capital, so long as it only reflects a change in the price of labour-power, changes nothing whatsoever in the absolute size of the value of the commodity — because nothing has changed in the absolute size of the new value that living labour-power creates. What such a change affects is only the ratio between the two parts of that new value: one part forms surplus-value, the other merely replaces the variable capital, and so enters into the cost price of the commodity.
What the two parts of the cost price have in common — in our example, 400c + 100v — is just this: both are parts of the commodity's value that replace capital that was laid out.
What has just been described is how things actually stand. From the standpoint of capitalist production it cannot help but look the other way round.
Capitalist production differs from slave-based production in one respect, among others: the value, or price, of labour-power appears here as the value, or price, of labour itself — as wages. (This was already shown in Volume 1.) So the variable part of the capital advanced appears as capital laid out in wages, as a sum that pays for the value, or price, of all the labour spent in production.
Say an average social working day of 10 hours is worth 6 shillings in money. Then a variable capital advance of £100 is the money-expression of a value produced in 333⅓ ten-hour working days.
But this value of the labour-power bought, the value that figures in the capital advanced, is not actually part of the capital that functions in production. What steps into its place, in the production process itself, is living labour-power. If, as in our example, the rate of exploitation of that labour-power is 100%, then it is spent over 666⅔ ten-hour working days, and so adds a new value of £200 to the product.
But in the capital advanced, the variable capital of £100 still figures as capital laid out in wages — as the price of the labour performed over those 666⅔ ten-hour days. £100 divided by 666⅔ gives us, as the price of the ten-hour working day, 3 shillings — the value product of five hours' labour. In that reckoning the whole ten-hour day counts as bought at those 3 shillings, so the five hours it does not cover pass as paid rather than as missing.
Now let's set the capital advanced against the value of the commodity, side by side:
Capital advanced of £500 = £400 of capital laid out on means of production (the price of the means of production) + £100 of capital laid out on labour (the price of 666⅔ working days, or the wages for them).
Value of the commodity of £600 = cost price of £500 (£400, the price of the means of production used up, + £100, the price of the 666⅔ working days used up) + £100 surplus-value.
In this formula, the part of the capital laid out on labour differs from the part laid out on means of production — cotton or coal, say — only in that it pays for a materially different element of production. It differs not at all in playing some different functional role in how the commodity's value is formed, and so in how capital is valorized — in how the capital laid out comes back larger than it went in.
In the cost price of the commodity, the price of the means of production reappears just as it already figured in the capital advanced — because these means of production were used up as intended. In just the same way, the price, or wages, for the 666⅔ working days used up in producing it reappears in the cost price just as it already figured in the capital advanced — again because this quantity of labour was spent as intended.
What we see, then, is only finished, ready-made values — the portions of the advanced capital's value that go into forming the value of the product — and no element that creates new value. So, in this formula, the distinction between constant capital and variable capital has vanished.
The whole cost price of £500 now carries a double meaning. First, it is the part of the commodity's £600 value that replaces the £500 of capital spent producing the commodity. Second, this portion of the commodity's value exists at all only because it already existed beforehand as the cost price of the production elements applied — the means of production and the labour — that is, as the capital advanced.
The value of the capital reappears as the cost price of the commodity because it was spent as a value of capital, and only so far as it was spent.
The different value-portions of the capital advanced are laid out on materially different elements of production — means of labour, raw and auxiliary materials, and labour. That only means the cost price of the commodity has to buy back these materially different elements. As far as forming the cost price itself goes, though, only one distinction still counts: the distinction between fixed and circulating capital.
In our example, £20 was reckoned for wear and tear of the means of labour (400c = £20 for wear and tear of the means of labour + £380 for materials of production). Say the value of these means of labour, before the commodity was produced, was £1,200. After production it exists in two forms: £20 as part of the commodity's value, and £1,200 minus £20, or £1,180, as the remaining value of the means of labour still in the capitalist's possession — a value-element not of his commodity-capital, but of his productive capital.
Materials of production and wages, unlike the means of labour, are used up completely in producing the commodity, so their whole value goes into the value of the commodity produced. We have already seen how these different portions of the capital advanced take on the forms of fixed and circulating capital in relation to their turnover.
So the capital advanced comes to £1,680: fixed capital of £1,200, plus circulating capital of £480 (£380 in materials of production plus £100 in wages).
The cost price of the commodity, by contrast, is only £500 (£20 for wear and tear of the fixed capital, £480 for circulating capital).
This difference between the cost price of the commodity and the capital advanced confirms only one thing: that the cost price of the commodity is made up exclusively of the capital actually spent producing it.
Producing the commodity uses means of labour worth £1,200, but of this advanced capital value only £20 is lost in production. So the fixed capital applied enters the cost price of the commodity only in part, because only part of it is used up in producing the commodity. The circulating capital applied enters the cost price in full, because all of it is used up in producing the commodity.
But what does this show, except that the fixed and circulating portions of capital used up enter the cost price of the commodity equally, each in proportion to its own value — and that this portion of the commodity's value arises only from the capital actually spent producing it? If that were not so, there would be no reason why the £1,200 of fixed capital advanced should not add to the value of the product not just the £20 it loses in the production process, but also the £1,180 it does not lose.
This difference between fixed and circulating capital, in how the cost price gets worked out, confirms only the seeming origin of the cost price in the capital value spent — in the price that the elements of production used up, labour included, cost the capitalist himself. At the same time, as far as forming value goes, the variable part of the capital laid out on labour-power is here, under the heading of circulating capital, expressly identified with constant capital — the part of the capital that consists of materials of production. And with that, the mystification of capital's valorization process is complete.
We've only looked at one part of a commodity's value so far: its cost price. Now we need to look at the other part — the excess over the cost price, or surplus-value.
To begin with, then, surplus-value is simply the excess of the commodity's value over its cost price. But since the cost price equals the value of the capital that was spent — and that capital is constantly turned back into its physical elements — this excess of value is really an increase in the value of the capital that was laid out in producing the commodity and that comes back once the commodity is sold.
We already saw that surplus-value springs only from a change in the value of the variable capital, and so is originally just an addition to that one part. Even so, once production is finished, it turns out to be just as much an increase in the value of the whole capital spent — equipment and materials together with wages.
The formula for this — c + (v + s) — indicates that the surplus-value is produced by turning the fixed sum of value advanced for labour-power into a moving, changing sum: a constant magnitude becoming a variable one. But it can just as well be written the other way round: the whole capital spent, taken as one sum, plus the surplus-value. Before production we had a capital of £500. After production we have that same £500, plus an increase in value of £100.
But surplus-value is an increase not just on the part of the advanced capital that goes into the process of expanding value — not just on the capital that gets replaced out of the commodity's cost price — but on the whole capital applied in production, full stop.
Before production began, the capitalist had a capital-value of £1,680: £1,200 laid out in equipment (fixed capital), of which only £20 enters the commodity's value as wear and tear, plus £480 in circulating capital — materials and wages. After production, £1,180 remains as the value still tied up in the productive capital, plus a commodity capital of £600 — the finished goods themselves. Add these two sums and the capitalist now holds a value of £1,780. Subtract the £1,680 he originally laid out, and £100 is left over.
So the £100 of surplus-value is an increase on the £1,680 applied just as much as it is an increase on the £500 fragment of it that was actually spent during production.
To the capitalist, it's now clear that this increase in value springs from the productive operations carried out with his capital — that it comes from the capital itself. After all, after production it's there, and before production it wasn't.
As he sees it, so far as the capital spent in production goes, surplus-value seems to spring evenly from its different elements of value — the ones tied up in means of production and the ones tied up in labour. These elements enter into forming the cost price on exactly equal terms; they add the values they carried as capital advanced to the value of the product evenly, without showing up as two different kinds of magnitude, one constant and one variable.
This becomes obvious in a simple case. Suppose the whole capital spent had consisted either entirely of wages or entirely of the value of means of production. In the first case, the value we've been using — 400 in means of production, 100 in wages, 100 in surplus-value — would become simply 500 in wages plus 100 in surplus-value. The £500 laid out in wages is the value of all the labour spent producing the £600 commodity-value, and so it forms the cost price of the whole product. Forming this cost price — where the value of the capital spent turns up again as a value-component of the product — is the only process in forming this commodity's value that can be made out from here. How its £100 surplus-value-component arises, this tells us nothing. It's exactly the same in the second case, where the commodity's value would be £500 in means of production plus £100 surplus-value. In both cases, all that has been established is that surplus-value springs from a given value because that value was advanced in the form of productive capital — it makes no difference whether in the form of labour or in the form of means of production.
On the other hand, though, the capital-value he advanced can't form surplus-value simply because it was spent, and so forms the commodity's cost price. Because exactly to the extent that it forms the cost price, it forms no surplus-value at all — only an equivalent, a replacement for the capital spent. So to the extent that it does form surplus-value, it forms it not in its character as spent capital, but as advanced, and so applied, capital in general. Surplus-value, on this reasoning, springs just as much from the part of the advanced capital that enters the commodity's cost price as from the part that doesn't — in a word, evenly from the fixed and the circulating parts of the capital applied. Materially, it is the whole capital that makes the product — the equipment just as much as the materials worked up and the labour itself. The whole capital enters materially into the actual labour process, even though only part of it enters the process that expands value. This may be exactly why it contributes only partly to forming the cost price, but wholly to forming surplus-value. However that may be, the upshot, to the capitalist, remains that surplus-value springs at once from every part of the capital applied.
The reasoning can be cut a good deal shorter if one puts it as bluntly and simply as Malthus does:
Malthus puts it this way: 'The capitalist ... expects an equal profit upon all the parts of the capital which he advances.'
As this imagined offspring of the whole capital advanced, surplus-value takes on the transformed form of profit. A sum of value is capital, then, because it's laid out to produce a profit — or, put the other way round, profit results because a sum of value is applied as capital. If we call profit p, the formula W = c + v + s, that is, W = k + s, turns into W = k + p: value = cost price + profit.
Profit, as we have it here to begin with, is the very same thing that surplus-value is — only in a mystified form, one that nonetheless grows necessarily out of the capitalist way of producing. Because no difference between constant and variable capital can be made out in the apparent way the cost price gets formed, the origin of the change in value that happens during production has to be shifted from the variable capital to the whole capital. Because on one side the price of labour-power appears in the transformed form of wages, on the other side surplus-value appears in the transformed form of profit.
We've seen that a commodity's cost price is smaller than its value. Since value equals cost price plus surplus-value, cost price equals value minus surplus-value. That equation collapses into commodity value equals cost price only if surplus-value is zero. And that never happens on the basis of capitalist production, though under special market conditions the selling price of commodities may sink to, or even below, their cost price.
If a commodity is sold at its value, then, a profit is realized equal to the excess of its value over its cost price — that is, equal to the whole surplus-value packed into the commodity's value. But the capitalist can sell the commodity at a profit even while selling it under its value. As long as the selling price stands above the cost price — even while standing below the value — part of the surplus-value contained in the commodity is always realized, so a profit is always made.
In our example the commodity's value is £600, its cost price £500. Sell the commodity at £510, £520, £530, £560, or £590, and it is sold £90, £80, £70, £40, or £10 under its value respectively — and yet a profit of £10, £20, £30, £60, or £90 respectively is still made on the sale. Between the commodity's value and its cost price there is plainly an indefinite series of possible selling prices. The larger the surplus-value making up part of the commodity's value, the larger the practical room for these in-between prices.
This explains not only everyday features of competition — certain cases of underselling, the abnormally low prices of goods in particular branches of industry, and so on. The basic law of capitalist competition, one that political economy has so far failed to grasp — the law that governs the general rate of profit and the so-called prices of production that rate determines — rests, as we shall see later, on this very gap between a commodity's value and its cost price, and on the resulting possibility of selling the commodity at a profit while selling it under its value.
The lowest possible limit for a commodity's selling price is set by its cost price. Sell it under its cost price, and the parts of the productive capital that were spent cannot be fully replaced out of the sale. If this keeps happening, the capital-value advanced simply disappears. Already on these grounds the capitalist is inclined to treat the cost price as the commodity's real, inner value, since it's the price he needs merely to keep his capital intact.
On top of this, the commodity's cost price is the purchase price the capitalist himself paid to have it produced — a purchase price fixed by the production process itself. So the excess of value realized when the commodity is sold, the surplus-value, appears to the capitalist as an excess of the selling price over the value, rather than as an excess of the value over the cost price. To him, then, the surplus-value locked inside the commodity is not realized by selling it — it seems to spring from the sale itself.
We already examined this illusion closely in Volume 1, in the chapter on the contradictions of the general formula for capital. Here we return for a moment to the form in which Torrens and others put it forward again, as if it were an advance on Ricardo.
Torrens argues: 'The natural price, which consists of the cost of production — in other words, the capital laid out in producing or manufacturing a commodity — cannot possibly include profit... If a farmer lays out 100 quarters of corn in cultivating his fields and gets back 120 quarters, the 20 quarters, being the surplus of the product over the outlay, make up his profit; but it would be absurd to call this surplus, or profit, part of his outlay... The manufacturer lays out a certain quantity of raw materials, tools, and means of subsistence for labour, and gets back in exchange a quantity of finished goods. This finished commodity must have a higher exchange-value than the raw materials, tools, and means of subsistence whose outlay obtained it.'
Torrens concludes from this that the excess of the selling price over the cost price — profit, in other words — arises because consumers
— in Torrens's words, 'by direct or roundabout exchange give a somewhat larger portion of all the ingredients of capital than their production costs'.
In fact, an excess over a given magnitude cannot form part of that magnitude itself. So profit too — the excess of the commodity's value over the capitalist's outlays — cannot form part of those outlays. If nothing else enters into forming the commodity's value except the capitalist's advance of value, then there is no way to see how production could turn out more value than went into it, unless something is created out of nothing.
Torrens escapes this creation out of nothing only by shifting it out of the sphere of producing commodities and into the sphere of exchanging them. Profit cannot come from production, Torrens says — for otherwise it would already be included in the costs of production, and so would not be an excess over those costs. Profit cannot come from the exchange of commodities either, Ramsay replies to him, unless it already existed before the exchange took place. The sum of value of the products exchanged plainly does not change just because those same products change hands. It stays the same after the exchange as before it.
It should be noted here that Malthus explicitly appeals to Torrens's authority, even though he himself works out the idea of selling commodities above their value differently — or rather does not really work it out at all, since arguments of this kind, in substance, unfailingly come down to the once-celebrated negative weight of phlogiston — the imaginary substance chemists of the day had to credit with less than no weight to keep their theory standing.
Within a state of society dominated by capitalist production, even the producer who is not himself a capitalist is dominated by capitalist ways of thinking. In his last novel, Les Paysans, Balzac — a writer with an unusually deep grasp of real conditions — portrays tellingly how the small peasant, to keep the goodwill of the money-lender, does all sorts of work for him for nothing, believing he is giving him nothing, because his own labour costs him no cash outlay. The money-lender, for his part, kills two birds with one stone: he saves the cash outlay on wages, and draws the peasant — increasingly ruined by the labour taken away from his own field — deeper and deeper into the web of usury.
The thoughtless notion that a commodity's cost price makes up its real value, while surplus-value springs from selling the commodity above its value — so that commodities count as sold at their values whenever the selling price equals the cost price, that is, equals the price of the means of production used up in them plus wages — has been trumpeted by Proudhon, with his usual scientific-sounding charlatanry, as a newly discovered secret of socialism. This reduction of the value of commodities to their cost price is, in fact, the very basis of his People's Bank scheme.
It was shown earlier that the different value-components of a product can be represented as proportional parts of the product itself. Say the value of 20 pounds of yarn is 30 shillings — 24 shillings means of production, 3 shillings labour-power, 3 shillings surplus-value. Then this surplus-value can be represented as a tenth of the product, or 2 pounds of yarn. Sell the 20 pounds of yarn now at its cost price, 27 shillings, and the buyer gets 2 pounds of yarn for nothing — the commodity is sold a tenth under its value. But the worker has performed exactly the same surplus labour as before; only now it benefits the buyer of the yarn instead of the capitalist who produced it.
It would be quite wrong to assume that if all commodities were sold at their cost prices, the result would actually be the same as if they were all sold above their cost prices but at their values. Because even supposing the value of labour-power, the length of the working day, and the degree to which labour is exploited are taken as equal everywhere, the masses of surplus-value contained in the values of different kinds of commodities are still thoroughly unequal, depending on the organic composition of the capitals advanced to produce them — that is, on how each of them divides between means of production and wages.
Volume 1 looked at what capitalist production shows when we take it on its own — as a direct process of production, setting aside every secondary effect from circumstances outside it. But that direct process of production is not the whole life of capital. In the real world it is completed by the process of circulation, and that process was the subject of Volume 2. There — especially in the third part, where circulation was treated as the medium of society's reproduction process — it became clear that capitalist production, taken as a whole, is the unity of the production process and the circulation process.
This third volume cannot simply offer general reflections on that unity. Its task is to find and set out the concrete forms that grow out of capital's movement, taken as a whole. In their real movement, capitals confront one another in just these concrete forms, in relation to which the shape capital takes in direct production, and the shape it takes in circulation, appear only as particular moments of one larger movement.
So the shapes of capital developed in this volume move step by step closer to the form in which capital appears on the surface of society — in the action of different capitals on one another, that is, in competition — and in the ordinary consciousness of the agents of production themselves.
The value of any commodity produced capitalistically, W, can be written as W = c + v + s. If we subtract the surplus-value, s, from this value of the product, what is left is simply an equivalent — a value in commodity-form that replaces the capital-value, c + v, laid out on the elements of production.
Suppose making a certain article costs a capital outlay of £500: £20 for the wear of the instruments of labour, £380 for raw materials, £100 for labour-power. If the rate of surplus-value is 100%, the value of the product is 400c + 100v + 100s = £600.
Once the £100 of surplus-value is deducted, a commodity-value of £500 remains, and this replaces only the £500 of capital that was laid out. This part of the commodity's value — the part that replaces the price of the means of production used up and the price of the labour-power employed — replaces only what the commodity costs the capitalist himself. That is why, for him, it forms the cost price of the commodity.
What the commodity costs the capitalist and what producing the commodity itself costs are two quite different quantities. The part of the commodity's value made up of surplus-value costs the capitalist nothing — precisely because it costs the worker unpaid labour. But under capitalist production, once the worker has entered the production process he himself becomes part of the productive capital at work — the capital actually in operation in production — which belongs to the capitalist, so the capitalist is the real producer of the commodity. That is why the cost price of the commodity necessarily appears to him as the real cost of the commodity itself.
Call the cost price k, and the formula W = c + v + s turns into W = k + s — that is, value of the commodity = cost price + surplus-value.
Grouping together, under the single heading 'cost price', the different parts of a commodity's value that merely replace the capital laid out in producing it — this grouping expresses, on the one hand, something specific to capitalist production. The capitalist's cost for the commodity is measured by his outlay in capital; the commodity's real cost is measured by the outlay in labour. So the capitalist's cost price for the commodity is quantitatively different from its value, or from its real cost price: it is smaller than the value of the commodity, since if W = k + s, then k = W - s.
On the other hand, the cost price of the commodity is by no means just a heading that exists only in the capitalist's books. This part of the value takes on a life of its own, and it keeps making itself felt in practice in the actual production of the commodity — because it must keep being converted, through circulation, out of commodity-form and back into the form of productive capital: the cost price of the commodity must constantly buy back the elements of production that were used up in making it.
The category of cost price, on the other hand, has nothing whatsoever to do with how the commodity's value is formed, or with capital's process of valorization — the process by which capital's own value expands. If I know that five-sixths of the commodity's value of £600 — that is, £500 — form only an equivalent, a replacement-value, for the £500 of capital laid out, and so are only enough to buy back the material elements of that capital, I still do not know, from that alone, how those five-sixths that make up the cost price were produced, nor how the remaining sixth that makes up the surplus-value was produced. But the investigation ahead will show that, within the capitalist economy, the cost price takes on the false appearance of being itself a category of value-production.
Let's go back to our example. Suppose the value one worker produces in an average social working day is represented by a sum of money of 6 shillings (6 marks). Then the capital advanced, £500 = 400c + 100v, represents the value produced in 1,666⅔ ten-hour working days — of which 1,333⅓ days are crystallized in the value of the means of production, = 400c, and 333⅓ days in the value of the labour-power, = 100v. At the assumed rate of surplus-value of 100%, producing the newly formed commodity itself therefore costs an expenditure of labour-power of 100v + 100s = 666⅔ ten-hour working days.
We know already, from Volume 1, that the value of the newly formed product, £600, is made up of two things: first, the reappearing value of the constant capital laid out on means of production, £400; second, a newly produced value of £200. The cost price of the commodity, £500, contains the reappearing 400c plus one half of the newly produced value of £200 — that is, the 100v. So the cost price is made up of two elements of the commodity's value that come from entirely different origins.
Because the labour expended over those 666⅔ ten-hour days is purposive labour — labour aimed at making this particular thing — the value of the means of production consumed, £400, is transferred from those means of production onto the product. This old value therefore reappears as part of the product's value, but it does not arise in the production process of this commodity: it is part of the commodity's value only because it was already part of the capital advanced. The constant capital laid out is thus replaced by the very part of the commodity's value that it adds to that value.
This element of the cost price has a double sense, then. On one hand, it enters into the cost price of the commodity because it is part of the commodity's value that replaces capital laid out. On the other hand, it forms only a part of the commodity's value because it is the value of capital that was laid out — because the means of production simply cost that much.
With the other component of the cost price, things run exactly the other way. The 666⅔ days of labour expended in producing the commodity form a new value of £200. Of this new value, one part merely replaces the variable capital advanced, £100 — that is, the price of the labour-power employed. But this advanced capital-value plays no part whatsoever in forming that new value.
Within the capital advanced, labour-power counts as a value. But in the production process, it functions as something that forms value. So what actually goes to work in production is not the sum of value entered for labour-power in the capital advanced, but living labour-power itself — and that is what creates value.
The difference between these two kinds of value-component that together make up the cost price becomes obvious the moment either one changes in size — first the constant part, then the variable part.
Suppose the price of the same means of production rises from £400 to £600, or instead falls to £200. In the first case, not only does the cost price of the commodity rise from £500 to 600c + 100v = £700 — the value of the commodity itself rises from £600 to 600c + 100v + 100s = £800. In the second case, not only does the cost price fall from £500 to 200c + 100v = £300 — the value of the commodity itself falls from £600 to 200c + 100v + 100s = £400. Because the constant capital expended transfers its own value onto the product, the value of the product, other things staying the same, rises and falls with the absolute size of that capital-value.
Now assume the reverse: other things staying the same, the price of the same quantity of labour-power rises from £100 to £150, or instead falls to £50. In the first case the cost price does rise, from £500 to 400c + 150v = £550, and in the second case it does fall, from £500 to 400c + 50v = £450 — but in both cases the value of the commodity stays unchanged, at £600: once as 400c + 150v + 50s, the other time as 400c + 50v + 150s.
The variable capital advanced does not add its own value to the product. In the product, its value is replaced by a new value that living labour has created. So a change in the absolute size of the variable capital, so long as it only reflects a change in the price of labour-power, changes nothing whatsoever in the absolute size of the value of the commodity — because nothing has changed in the absolute size of the new value that living labour-power creates. What such a change affects is only the ratio between the two parts of that new value: one part forms surplus-value, the other merely replaces the variable capital, and so enters into the cost price of the commodity.
What the two parts of the cost price have in common — in our example, 400c + 100v — is just this: both are parts of the commodity's value that replace capital that was laid out.
What has just been described is how things actually stand. From the standpoint of capitalist production it cannot help but look the other way round.
Capitalist production differs from slave-based production in one respect, among others: the value, or price, of labour-power appears here as the value, or price, of labour itself — as wages. (This was already shown in Volume 1.) So the variable part of the capital advanced appears as capital laid out in wages, as a sum that pays for the value, or price, of all the labour spent in production.
Say an average social working day of 10 hours is worth 6 shillings in money. Then a variable capital advance of £100 is the money-expression of a value produced in 333⅓ ten-hour working days.
But this value of the labour-power bought, the value that figures in the capital advanced, is not actually part of the capital that functions in production. What steps into its place, in the production process itself, is living labour-power. If, as in our example, the rate of exploitation of that labour-power is 100%, then it is spent over 666⅔ ten-hour working days, and so adds a new value of £200 to the product.
But in the capital advanced, the variable capital of £100 still figures as capital laid out in wages — as the price of the labour performed over those 666⅔ ten-hour days. £100 divided by 666⅔ gives us, as the price of the ten-hour working day, 3 shillings — the value product of five hours' labour. In that reckoning the whole ten-hour day counts as bought at those 3 shillings, so the five hours it does not cover pass as paid rather than as missing.
Now let's set the capital advanced against the value of the commodity, side by side:
Capital advanced of £500 = £400 of capital laid out on means of production (the price of the means of production) + £100 of capital laid out on labour (the price of 666⅔ working days, or the wages for them).
Value of the commodity of £600 = cost price of £500 (£400, the price of the means of production used up, + £100, the price of the 666⅔ working days used up) + £100 surplus-value.
In this formula, the part of the capital laid out on labour differs from the part laid out on means of production — cotton or coal, say — only in that it pays for a materially different element of production. It differs not at all in playing some different functional role in how the commodity's value is formed, and so in how capital is valorized — in how the capital laid out comes back larger than it went in.
In the cost price of the commodity, the price of the means of production reappears just as it already figured in the capital advanced — because these means of production were used up as intended. In just the same way, the price, or wages, for the 666⅔ working days used up in producing it reappears in the cost price just as it already figured in the capital advanced — again because this quantity of labour was spent as intended.
What we see, then, is only finished, ready-made values — the portions of the advanced capital's value that go into forming the value of the product — and no element that creates new value. So, in this formula, the distinction between constant capital and variable capital has vanished.
The whole cost price of £500 now carries a double meaning. First, it is the part of the commodity's £600 value that replaces the £500 of capital spent producing the commodity. Second, this portion of the commodity's value exists at all only because it already existed beforehand as the cost price of the production elements applied — the means of production and the labour — that is, as the capital advanced.
The value of the capital reappears as the cost price of the commodity because it was spent as a value of capital, and only so far as it was spent.
The different value-portions of the capital advanced are laid out on materially different elements of production — means of labour, raw and auxiliary materials, and labour. That only means the cost price of the commodity has to buy back these materially different elements. As far as forming the cost price itself goes, though, only one distinction still counts: the distinction between fixed and circulating capital.
In our example, £20 was reckoned for wear and tear of the means of labour (400c = £20 for wear and tear of the means of labour + £380 for materials of production). Say the value of these means of labour, before the commodity was produced, was £1,200. After production it exists in two forms: £20 as part of the commodity's value, and £1,200 minus £20, or £1,180, as the remaining value of the means of labour still in the capitalist's possession — a value-element not of his commodity-capital, but of his productive capital.
Materials of production and wages, unlike the means of labour, are used up completely in producing the commodity, so their whole value goes into the value of the commodity produced. We have already seen how these different portions of the capital advanced take on the forms of fixed and circulating capital in relation to their turnover.
So the capital advanced comes to £1,680: fixed capital of £1,200, plus circulating capital of £480 (£380 in materials of production plus £100 in wages).
The cost price of the commodity, by contrast, is only £500 (£20 for wear and tear of the fixed capital, £480 for circulating capital).
This difference between the cost price of the commodity and the capital advanced confirms only one thing: that the cost price of the commodity is made up exclusively of the capital actually spent producing it.
Producing the commodity uses means of labour worth £1,200, but of this advanced capital value only £20 is lost in production. So the fixed capital applied enters the cost price of the commodity only in part, because only part of it is used up in producing the commodity. The circulating capital applied enters the cost price in full, because all of it is used up in producing the commodity.
But what does this show, except that the fixed and circulating portions of capital used up enter the cost price of the commodity equally, each in proportion to its own value — and that this portion of the commodity's value arises only from the capital actually spent producing it? If that were not so, there would be no reason why the £1,200 of fixed capital advanced should not add to the value of the product not just the £20 it loses in the production process, but also the £1,180 it does not lose.
This difference between fixed and circulating capital, in how the cost price gets worked out, confirms only the seeming origin of the cost price in the capital value spent — in the price that the elements of production used up, labour included, cost the capitalist himself. At the same time, as far as forming value goes, the variable part of the capital laid out on labour-power is here, under the heading of circulating capital, expressly identified with constant capital — the part of the capital that consists of materials of production. And with that, the mystification of capital's valorization process is complete.
We've only looked at one part of a commodity's value so far: its cost price. Now we need to look at the other part — the excess over the cost price, or surplus-value.
To begin with, then, surplus-value is simply the excess of the commodity's value over its cost price. But since the cost price equals the value of the capital that was spent — and that capital is constantly turned back into its physical elements — this excess of value is really an increase in the value of the capital that was laid out in producing the commodity and that comes back once the commodity is sold.
We already saw that surplus-value springs only from a change in the value of the variable capital, and so is originally just an addition to that one part. Even so, once production is finished, it turns out to be just as much an increase in the value of the whole capital spent — equipment and materials together with wages.
The formula for this — c + (v + s) — indicates that the surplus-value is produced by turning the fixed sum of value advanced for labour-power into a moving, changing sum: a constant magnitude becoming a variable one. But it can just as well be written the other way round: the whole capital spent, taken as one sum, plus the surplus-value. Before production we had a capital of £500. After production we have that same £500, plus an increase in value of £100.
But surplus-value is an increase not just on the part of the advanced capital that goes into the process of expanding value — not just on the capital that gets replaced out of the commodity's cost price — but on the whole capital applied in production, full stop.
Before production began, the capitalist had a capital-value of £1,680: £1,200 laid out in equipment (fixed capital), of which only £20 enters the commodity's value as wear and tear, plus £480 in circulating capital — materials and wages. After production, £1,180 remains as the value still tied up in the productive capital, plus a commodity capital of £600 — the finished goods themselves. Add these two sums and the capitalist now holds a value of £1,780. Subtract the £1,680 he originally laid out, and £100 is left over.
So the £100 of surplus-value is an increase on the £1,680 applied just as much as it is an increase on the £500 fragment of it that was actually spent during production.
To the capitalist, it's now clear that this increase in value springs from the productive operations carried out with his capital — that it comes from the capital itself. After all, after production it's there, and before production it wasn't.
As he sees it, so far as the capital spent in production goes, surplus-value seems to spring evenly from its different elements of value — the ones tied up in means of production and the ones tied up in labour. These elements enter into forming the cost price on exactly equal terms; they add the values they carried as capital advanced to the value of the product evenly, without showing up as two different kinds of magnitude, one constant and one variable.
This becomes obvious in a simple case. Suppose the whole capital spent had consisted either entirely of wages or entirely of the value of means of production. In the first case, the value we've been using — 400 in means of production, 100 in wages, 100 in surplus-value — would become simply 500 in wages plus 100 in surplus-value. The £500 laid out in wages is the value of all the labour spent producing the £600 commodity-value, and so it forms the cost price of the whole product. Forming this cost price — where the value of the capital spent turns up again as a value-component of the product — is the only process in forming this commodity's value that can be made out from here. How its £100 surplus-value-component arises, this tells us nothing. It's exactly the same in the second case, where the commodity's value would be £500 in means of production plus £100 surplus-value. In both cases, all that has been established is that surplus-value springs from a given value because that value was advanced in the form of productive capital — it makes no difference whether in the form of labour or in the form of means of production.
On the other hand, though, the capital-value he advanced can't form surplus-value simply because it was spent, and so forms the commodity's cost price. Because exactly to the extent that it forms the cost price, it forms no surplus-value at all — only an equivalent, a replacement for the capital spent. So to the extent that it does form surplus-value, it forms it not in its character as spent capital, but as advanced, and so applied, capital in general. Surplus-value, on this reasoning, springs just as much from the part of the advanced capital that enters the commodity's cost price as from the part that doesn't — in a word, evenly from the fixed and the circulating parts of the capital applied. Materially, it is the whole capital that makes the product — the equipment just as much as the materials worked up and the labour itself. The whole capital enters materially into the actual labour process, even though only part of it enters the process that expands value. This may be exactly why it contributes only partly to forming the cost price, but wholly to forming surplus-value. However that may be, the upshot, to the capitalist, remains that surplus-value springs at once from every part of the capital applied.
The reasoning can be cut a good deal shorter if one puts it as bluntly and simply as Malthus does:
Malthus puts it this way: 'The capitalist ... expects an equal profit upon all the parts of the capital which he advances.'
As this imagined offspring of the whole capital advanced, surplus-value takes on the transformed form of profit. A sum of value is capital, then, because it's laid out to produce a profit — or, put the other way round, profit results because a sum of value is applied as capital. If we call profit p, the formula W = c + v + s, that is, W = k + s, turns into W = k + p: value = cost price + profit.
Profit, as we have it here to begin with, is the very same thing that surplus-value is — only in a mystified form, one that nonetheless grows necessarily out of the capitalist way of producing. Because no difference between constant and variable capital can be made out in the apparent way the cost price gets formed, the origin of the change in value that happens during production has to be shifted from the variable capital to the whole capital. Because on one side the price of labour-power appears in the transformed form of wages, on the other side surplus-value appears in the transformed form of profit.
We've seen that a commodity's cost price is smaller than its value. Since value equals cost price plus surplus-value, cost price equals value minus surplus-value. That equation collapses into commodity value equals cost price only if surplus-value is zero. And that never happens on the basis of capitalist production, though under special market conditions the selling price of commodities may sink to, or even below, their cost price.
If a commodity is sold at its value, then, a profit is realized equal to the excess of its value over its cost price — that is, equal to the whole surplus-value packed into the commodity's value. But the capitalist can sell the commodity at a profit even while selling it under its value. As long as the selling price stands above the cost price — even while standing below the value — part of the surplus-value contained in the commodity is always realized, so a profit is always made.
In our example the commodity's value is £600, its cost price £500. Sell the commodity at £510, £520, £530, £560, or £590, and it is sold £90, £80, £70, £40, or £10 under its value respectively — and yet a profit of £10, £20, £30, £60, or £90 respectively is still made on the sale. Between the commodity's value and its cost price there is plainly an indefinite series of possible selling prices. The larger the surplus-value making up part of the commodity's value, the larger the practical room for these in-between prices.
This explains not only everyday features of competition — certain cases of underselling, the abnormally low prices of goods in particular branches of industry, and so on. The basic law of capitalist competition, one that political economy has so far failed to grasp — the law that governs the general rate of profit and the so-called prices of production that rate determines — rests, as we shall see later, on this very gap between a commodity's value and its cost price, and on the resulting possibility of selling the commodity at a profit while selling it under its value.
The lowest possible limit for a commodity's selling price is set by its cost price. Sell it under its cost price, and the parts of the productive capital that were spent cannot be fully replaced out of the sale. If this keeps happening, the capital-value advanced simply disappears. Already on these grounds the capitalist is inclined to treat the cost price as the commodity's real, inner value, since it's the price he needs merely to keep his capital intact.
On top of this, the commodity's cost price is the purchase price the capitalist himself paid to have it produced — a purchase price fixed by the production process itself. So the excess of value realized when the commodity is sold, the surplus-value, appears to the capitalist as an excess of the selling price over the value, rather than as an excess of the value over the cost price. To him, then, the surplus-value locked inside the commodity is not realized by selling it — it seems to spring from the sale itself.
We already examined this illusion closely in Volume 1, in the chapter on the contradictions of the general formula for capital. Here we return for a moment to the form in which Torrens and others put it forward again, as if it were an advance on Ricardo.
Torrens argues: 'The natural price, which consists of the cost of production — in other words, the capital laid out in producing or manufacturing a commodity — cannot possibly include profit... If a farmer lays out 100 quarters of corn in cultivating his fields and gets back 120 quarters, the 20 quarters, being the surplus of the product over the outlay, make up his profit; but it would be absurd to call this surplus, or profit, part of his outlay... The manufacturer lays out a certain quantity of raw materials, tools, and means of subsistence for labour, and gets back in exchange a quantity of finished goods. This finished commodity must have a higher exchange-value than the raw materials, tools, and means of subsistence whose outlay obtained it.'
Torrens concludes from this that the excess of the selling price over the cost price — profit, in other words — arises because consumers
— in Torrens's words, 'by direct or roundabout exchange give a somewhat larger portion of all the ingredients of capital than their production costs'.
In fact, an excess over a given magnitude cannot form part of that magnitude itself. So profit too — the excess of the commodity's value over the capitalist's outlays — cannot form part of those outlays. If nothing else enters into forming the commodity's value except the capitalist's advance of value, then there is no way to see how production could turn out more value than went into it, unless something is created out of nothing.
Torrens escapes this creation out of nothing only by shifting it out of the sphere of producing commodities and into the sphere of exchanging them. Profit cannot come from production, Torrens says — for otherwise it would already be included in the costs of production, and so would not be an excess over those costs. Profit cannot come from the exchange of commodities either, Ramsay replies to him, unless it already existed before the exchange took place. The sum of value of the products exchanged plainly does not change just because those same products change hands. It stays the same after the exchange as before it.
It should be noted here that Malthus explicitly appeals to Torrens's authority, even though he himself works out the idea of selling commodities above their value differently — or rather does not really work it out at all, since arguments of this kind, in substance, unfailingly come down to the once-celebrated negative weight of phlogiston — the imaginary substance chemists of the day had to credit with less than no weight to keep their theory standing.
Within a state of society dominated by capitalist production, even the producer who is not himself a capitalist is dominated by capitalist ways of thinking. In his last novel, Les Paysans, Balzac — a writer with an unusually deep grasp of real conditions — portrays tellingly how the small peasant, to keep the goodwill of the money-lender, does all sorts of work for him for nothing, believing he is giving him nothing, because his own labour costs him no cash outlay. The money-lender, for his part, kills two birds with one stone: he saves the cash outlay on wages, and draws the peasant — increasingly ruined by the labour taken away from his own field — deeper and deeper into the web of usury.
The thoughtless notion that a commodity's cost price makes up its real value, while surplus-value springs from selling the commodity above its value — so that commodities count as sold at their values whenever the selling price equals the cost price, that is, equals the price of the means of production used up in them plus wages — has been trumpeted by Proudhon, with his usual scientific-sounding charlatanry, as a newly discovered secret of socialism. This reduction of the value of commodities to their cost price is, in fact, the very basis of his People's Bank scheme.
It was shown earlier that the different value-components of a product can be represented as proportional parts of the product itself. Say the value of 20 pounds of yarn is 30 shillings — 24 shillings means of production, 3 shillings labour-power, 3 shillings surplus-value. Then this surplus-value can be represented as a tenth of the product, or 2 pounds of yarn. Sell the 20 pounds of yarn now at its cost price, 27 shillings, and the buyer gets 2 pounds of yarn for nothing — the commodity is sold a tenth under its value. But the worker has performed exactly the same surplus labour as before; only now it benefits the buyer of the yarn instead of the capitalist who produced it.
It would be quite wrong to assume that if all commodities were sold at their cost prices, the result would actually be the same as if they were all sold above their cost prices but at their values. Because even supposing the value of labour-power, the length of the working day, and the degree to which labour is exploited are taken as equal everywhere, the masses of surplus-value contained in the values of different kinds of commodities are still thoroughly unequal, depending on the organic composition of the capitals advanced to produce them — that is, on how each of them divides between means of production and wages.