Capital: a Critique of Political Economy, Volume 3

PENGUIN

/ M

CLASSICS

CAPITAL VOLUME 3

KARL MARX was born at Trier in 1818 of a German-Jewish family converted to Christianity. A s a student in Bonn and Berlin he was influenced by Hegel's dialectic, but he later reacted against idealist philosophy and began to develop his theory of historical materialism. He related the state of society to its economic foundations and mode of production, and recommended armed revolution on the part of the proletariat. In Paris in 1844 Marx met Friedrich Engels, with whom he formed a life-long partnership. Together they prepared the Manifesto of the Communist Party (1848) as a statement of the Communist League's policy. In 1848 Marx returned to Germany and took an active part in the unsuccessful democratic revolution. The following year he arrived in England as a refugee and lived in London until his death in 1883. Helped financially by Engels, Marx and his family nevertheless lived in great poverty. After years of research (mostly carried out in the British Museum), he published in 1867 the first volume of his great work, Capital. From 1864 to 1872 Marx played a leading role in the International Working Men's Association, and his last years saw the development of the first mass workers' parties founded on avowedly Marxist principles. Besides the two posthumous volumes of Capital compiled by Engels, Karl Marx's other writings include The German Ideology, The Poverty of Philosophy, The 18th Brumaire of Louis Bonaparte, The Civil War in France, A Contribution to the Critique of Political Economy, Grundrisse: Foundations of the Critique of Political Economy and Theories of Surplus- Value. ERNEST MANDEL was born in 1923. He was educated at the Free University of Brussels, where he was later Professor for many years, and the Ecole Pratique des Hautes Etudes in Paris. He gained his P h D from the Free University of Berlin. He was a Member of the Economic Studies Commission of FGTB (Belgian TUC) from 1954 to 1963 and was chosen for the annual Alfred Marshall Lectures by

Cambridge University in 1978. His many books include The Formation of the Economic Thought of Karl Marx, Late Capitalism, The Long Waves of Capitalist Development, The Second Slump and The Marxist Theory of Bureaucracy. His influential pamphlet, An Introduction to Marxist Economics, sold over half a million copies and was translated into thirty languages. Ernest Mandel died in July 1995. In its obituary the Guardian described him as 'one of the most creative and independent-minded revolutionary Marxist thinkers of the post-war world'.

KARL MARX

Capital A Critique of Political Economy Volume Three Introduced by Ernest Mandel Translated by David Fernbach

Penguin Books in association with New Left Review

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New Left Review, 7 Carlisle Street, London W1 This edition first published in Pelican Books 1981 Reprinted in Penguin Classics 1991 8 Edition and notes copyright © New Left Review, 1981 Introduction copyright © Ernest Mandel, 1981 Translation copyright © David Fernbach, 1981 All rights reserved Printed in England by Clays Ltd, St Ives pic Set in Monotype Times Except in the United States of America, this book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, re-sold, hired out, or otherwise circulated without the publisher's prior consent in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser

Contents

Introduction by Ernest Mandel Preface (Frederick Engels) 91

9

Book III: The Process of Capitalist Production as a Whole Part One: The Transformation of Surplus-Value into Profit, and of the Rate of Surplus-Value into the Rate of Profit Chapter 1: Cost Price and Profit Chapter 2: The Rate of Profit

117

132

Chapter 3: T h e Relationship between Rate of Profit and Rate of Surplus-Value

141

Chapter 4: The Effect of the Turnover on the Rate of Profit

163

Chapter 5: Economy in the Use of Constant Capital 170 1. General Considerations 2. Saving on the Conditions of Work at the Workers' Expense 3. Economy in the Generation and Transmission of Power, and on Buildings 4. Utilization of the Refuse of Production 5. Economy through Inventions Chapter 6: The Effect of Changes in Price 200 1. Fluctuations in the Price of Raw Material; Their Direct Effects on the Rate of Profit 2. Revaluation and Devaluation of Capital; Release and Tying-Up of Capital 3. General Illustration: The Cotton Crisis 1861-5 Chapter 7: Supplementary Remarks

235

Part Two: The Transformation of Profit into Average Profit Chapter 8: Different Compositions of Capital in Different Branches of Production, and the Resulting Variation in Rates of Profit 241

Chapter 9: Formation of a General Rate of Profit (Average Rate of Profit), and Transformation of Commodity Values into Prices of Production 254 Chapter 10: The Equalization of the General Rate of Profit through Competition. Market Prices and Market Values. Surplus Profit

273

Chapter 11: The Effects of General Fluctuations in Wages on the Prices of Production

302

Chapter 12: Supplementary Remarks 307 1. The Causes of a Change in the Price of Production 2. The Production Price of Commodities of Average Composition 3. The Capitalist's Grounds for Compensation Part Three: The Law of the Tendential Fall in the Rate of Profit Chapter 13: The Law Itself

317

Chapter 14: Counteracting Factors 339 1. More Intense Exploitation of Labour 2. Reduction of Wages below their Value 3. Cheapening of the Elements of Constant Capital 4. The Relative Surplus Population 5. Foreign Trade 6. The Increase in Share Capital Chapter 15: Development of the Law's Internal Contradictions 349 1. General Considerations 2. The Conflict between the Extension of Production and Valorization 3. Surplus Capital alongside Surplus Population 4. Supplementary Remarks Part Four: The Transformation of Commodity Capital and Money Capital into Commercial Capital and Money-Dealing Capital (Merchant's Capital) Chapter 16: Commercial Capital Chapter 17: Commercial Profit

379 394

Chapter 18: The Turnover of Commercial Capital. Prices Chapter 19: Money-Dealing Capital

417

431

Chapter 20: Historical Material o n Merchant's Capital

440

Part Five: The Division of Profit into Interest and Profit of Enterprise Chapter 21: Interest-Bearing Capital

459

Chapter 22: Division of Profit. Rate of Interest. 'Natural' Rate of Interest

480

Chapter 23: Interest and Profit of Enterprise

493

Chapter 24: Interest-Bearing Capital as the Superficial Form of the Capital Relation

515

Chapter 25: Credit and Fictitious Capital 525 Chapter 26: Accumulation of Money Capital, and its Influence on the Rate of Interest 543 Chapter 27: The Role of Credit in Capitalist Production 566 Chapter 28: Means of Circulation and Capital. The Views of Tooke and Fullarton 574 Chapter 29: Banking Capital's Component Parts Chapter 30: Money Capital and Real Capital: I

594 607

Chapter 31: Money Capital and Real Capital: II (Continuation) 1. Transformation of Money into Loan Capital 2. Transformation of Capital or Revenue into Money that is Transformed into Loan Capital

626

Chapter 32: Money Capital and Real Capital: III (Conclusion)

637

Chapter 33: The Means of Circulation under the Credit System

653

Chapter 34: The Currency Principle and the English Bank Legislation of 1844 672 Chapter 35: Precious Metal and Rate of Exchange 1. The Movement of the Gold Reserve 2. The Exchange Rate Chapter 36: Pre-Capitalist Relations

699

728

Part Six: The Transformation of Surplus Profit into Ground-Rent Chapter 37: Introduction

751

Chapter 38: Differential Rent in General

779

Chapter 39: The First Form of Differential Rent (Differential Rent I) 788 Chapter 40: The Second Form of Differential Rent (Differential Rent II) 812 Chapter 41: Differential Rent II - First Case: Price of Production Constant 82*

Chapter 42: Differential Rent II - Second Case: Price of Production Falling 832 1. With the Productivity of the Extra Capital Investment Remaining Constant 2. A Falling Rate of Productivity for the Extra Capital 3. A Rising Rate of Productivity for the Extra Capital Chapter 43: Differential Rent II - Third Case: Rising Price of Production. Results 847 Chapter 44: Differential Rent Even on the Poorest Land Cultivated

872

Chapter 45: Absolute Ground-Rent

882

Chapter 46: Rent of Buildings. Rent of Mines. Price of Land Chapter 47: The Genesis of Capitalist Ground-Rent 1. Introduction 2. Labour Rent 3. Rent in Kind 4. Money Rent

908

917

5. Share-Cropping and Small-Scale Peasant Ownership Part Seven: The Revenues and Their Sources Chapter 48: The Trinity Formula

953

Chapter 49: On the Analysis of the Production Process Chapter 50: T h e Illusion Created by Competition

971

992

Chapter 51: Relations of Distribution and Relations of Production

1017

Chapter 52: Classes 1025 Supplement and Addendum to Volume 3 of Engels) 1027 1. Law of Value and Rate of Profit 2. The Stock Exchange

Capital (Frederick

Quotations in Languages other than English and German Index of Authorities Quoted General Index

1048

1050

1066

N o t e o n Previous Editions of the Works of Marx and Engels Chronology of Works by Marx and Engels

1083

1082

Introduction

If the first volume of Capital is the most famous and widely read, and if the second is the unknown one, the third is the most controversial. The disputes started before it was even published, as Frederick Engels indicates in his Preface. They continued after the latter brought it out in 1894, most notably in the form of a critique of Marx's economic doctrines by the Austrian economist Eugen von Bohm-Bawerk two years later.1 They have been going on ever since. Hardly a year passes without some new attempt to refute one or other of Volume 3's main theses, or to indicate their alleged inconsistency with Volume l. 2 The reason for these insistent polemics is not hard to discover. Volume 1 concentrates on the factory, the production of surplusvalue, and the capitalists' need constantly to increase this production. Volume 2 concentrates on the market-place and examines the reciprocal flows of commodities and money (purchasing power) which, as they realize their values, allow the economy to reproduce and grow (while requiring a proportional division both of commodities into different categories of specific use-value and of money flows into purchasing power for specific commodities3). While these volumes contain a tremendous amount of intellectual and moral dynamite aimed at bourgeois society and its prevailing 1. Eugen von Bohm-Bawerk, Karl Marx and the End of his System, New York, 1949. 2. Some recent examples: Ian Steedman, Marx after Sraffa, London, 1977; Anthony Cutler, Barry Hindess, Paul Hirst and Athar Hussein, Marx's ' Capital' and Capitalism Today, Vols. 1 and 2, London, 1977 and 1978 ; Leszek Kolakowski, Main Currents of Marxism, Volume 1, Oxford, 1978. 3. The term 'money flows' is adopted, since these include, in addition to 'revenues', money capital intended to reconstitute constant capital, to reconstitute variable capital (which is spent as revenue by workers, but must return in the form of money capital to the industrialists) and to expand both c and v.

ideology - with all that these entail for human beings, and above all for workers - they give no precise indication of the way in which the system's inner contradictions prepare the ground for its final and inevitable downfall. Volume 1 shows us only that capitalism produces its own gravedigger in the form of the modern proletariat, and that social contradictions intensify inside the system. Volume 2 indicates that capitalism cannot achieve continuously enlarged reproduction; that its growth takes the form of the industrial cycle; that its equilibrium is only a product of constantly reappearing disequilibria; that periodic crises of overproduction are inevitable. But the precise way in which these contradictions (and many others) are interrelated, so that the basic laws of motion of the capitalist mode of production lead to explosive crises and its ultimate collapse, is not worked out in detail in these first volumes. They are initial stages in an analysis whose final aim is to explain how the system concretely operates - in 4 essence' as in ' appearance'. Such an explanation of the capitalist economy in its totality is precisely the object of Volume 3. However, it is not completed here. In the first place, Marx did not leave a finished manuscript of the volume, so that important sections are lacking. It is certain that the unfinished Part Seven, which ends with the barely initiated Chapter 52 on social classes, would have provided a vital link between the economic content of the class struggle between capital and labour, as developed at length in Volume 1, and its overall economic outcome, partially sketched in Chapters 11 and 15 of Volume 3.4 In the second place, Volume 3 is subtitled 'The Process of Capitalist Production in its Totality'. But as we already know from Volume 2, the totality of the capitalist system includes circulation as well as production. In order to complete an examination of the capitalist system in its totality, Capital would have had to include supplementary volumes dealing, among other matters, with the world market, competition, the industrial cycle and the state. All this was contained in Marx's plan for Capital, and there is no indication that he abandoned it; 5 on the contrary, there are 4. See Marx's letter to Engels on 30 April 1868, in Marx/Engels, Selected Correspondence, Moscow, n.d., p. 250, where he indicates his plan for Volume 3: ' . . . in conclusion, the class struggle, in which the movement and decomposition of the whole mess are resolved' (translation amended). 5. On Marx's initial plan for Capital, see Ernest Mandel, Introduction to Volume 1 of Capital, Pelican Marx Library, London, 1976, pp. 25-32.

passages here which confirm that he postponed detailed examination of these problems to later volumes, alas unwritten.6 Volume 3 provides valuable indications of how Marx would have set about the integration of these questions into an overall view of the capitalist system. But it does not contain a fully developed theory of the world market, of (national and international) competition, or especially of industrial crisis. Many of the controversies centring around the third volume of Capital are precisely due to the incomplete nature - for the reasons just indicated - of some of the theories contained in it. But the basic reason for the amplitude and duration of these polemics lies in the fact that Volume 3 aims to answer the question: 'Whither capitalism?' It seeks to show that the system is intrinsically ('immanently') crisis-ridden: that neither the efforts of individual capitalists nor those of public authorities can prevent crises from breaking out. It seeks to show that inherent mechanisms, which cannot be overcome without abolishing private property, competition, profit and commodity production (the market economy), must lead to a final collapse. That this judgement is unpalatable to capitalists and their hangers-on hardly needs emphasizing. That it is equally unwelcome to 'neutral' economists who, in spite of their claims to be value-free, in reality assume the permanence and preferability of commodity production and the market economy - as determined by human nature and corresponding to the interests of mankind - can also be taken for granted. Finally, that it poses formidable problems for philanthropists and social reformers who, though sharing Marx's indignation at the mass poverty and destitution provoked by the spontaneous workings of the system, believe that these can be overcome without getting rid of the system itself, has been confirmed repeatedly in theoretical discussions and political struggles within and around the labour movement since the end of the nineteenth century. So there are indeed compelling social reasons why Volume 3 should have created the furore it undoubtedly has. THE P L A N OF VOLUME 3

Volume 3 is constructed with the same logical rigour as its predecessors. The substantive problem which Marx seeks to elucidate here is not that of the origin of the two basic categories of revenue: 6. See below, pp. 205, 298, 426, etc.

wages and profits. That problem was solved in Volume 1. What he wants to show here is how specific sectors of the ruling class participate in the distribution of the total mass of surplus-value produced by productive wage-labour, and how these specific economic categories are regulated. His inquiry deals fundamentally with four such ruling-class groups: industrial capitalists; commercial capitalists; bankers; capitalist landowners.7 Five categories of revenue, therefore, appear in Volume 3: wages; industrial profits; commercial (and banking) profits; interest; land rent. These are further regrouped by Marx into three basic categories: wages, profits and land rent. But in order to analyse the different parts into which the total mass of surplus-value is divided, a whole series of intermediate steps have to be taken. The rate of profit has to be distinguished as a separate analytical category - from the rate of surplus-value, and the various factors which influence that rate of profit identified. The tendency towards an equalization of the rate of profit between all capitals, independently of the amount of surplus-value produced by their 'own' variable capital, i.e. by the productive wage-labourers whom they productively employ, has to be discovered. And from these two conceptual innovations is deduced the centre-piece of the entire volume: the tendency of the average rate of profit to decline - in the absence of countervailing tendencies. Having deduced profit in general from surplus-value in general, Marx goes on to show how profit itself becomes divided into entrepreneurial profit (be it in industry, transport or trade) and interest, i.e. that part of surplus-value which accrues to capitalists who own-money capital and limit themselves to lending it to entrepreneurs. Finally, the total mass of surplus-value which is divided among all entrepreneurs and money-lenders is reduced by introducing the category of surplus profit (surplus-value which does not participate in the general movement of equalization of the rate of profit). The reasons why such surplus profit can arise are studied in detail for one special case, that of land rent. But Marx makes it clear, especially in Chapters 10 and 14, that land rent is only a special case of a more general phenomenon. Therefore, we are justified in saying that what Part Six of Volume 3 is 7. Capitalist landowners, as distinct from feudal and semi-feudal ones: i.e. landowners who limit themselves to renting out land to capitalist or independent farmers for money income, without involving any form of feudal or semifeudal bondage or service.

really all about is the more general problem of monopoly giving rise to surplus profit. In his theory of surplus profit, Marx anticipates the whole contemporary theory of monopoly prices and profits, while being much clearer as to their origins than are most of the academic economists who, throughout the twentieth century, have been trying to elucidate the mysteries of monopoly.8 The fundamental logic of Marx's Capital unfolds in all its majesty once we integrate the structure of Volume 3 into that of Volumes 1 and 2. The diagram on pages 14-15 gives a schematic representation of their overall contents and global cohesion. THE EQUALIZATION OF THE RATE OF PROFIT

In Volume 1, Marx showed that surplus-value is only produced by living labour: from the capitalist's point of view, by that fraction of capital which is spent on purchasing labour-power, and not by that spent on buying buildings, machinery, raw materials, energy, etc. For this reason, Marx called the former fraction of capital variable and the latter constant. It would at first seem to follow that the greater the proportion of capital which each industrial branch, spends on wages, the higher its rate of profit (the relation between the surplus-value produced and the total amount of capital invested, or spent in annual production). However, such a situation would contradict the basic logic of the capitalist mode of production, which consists of expansion, growth, enlarged reproduction, through a substitution of living by dead labour: through an increase in the organic composition of capital, with a growing part of total capital expenditure occurring in the form of expenditure for equipment, raw material and energy, as against expenditure for wages. This basic logic results both from capitalist competition (the reduction of cost price being, at least in the long run, a function of more and more efficient machinery, i.e. of technical progress which is essentially labour-saving) and from the class struggle (since again, in the long run, the only way in which the growth of capital accumulation can prevent labour shortage and hence a constant increase in the level of real wages, which 8. Among academic economists dealing with monopolies and oligopolies from the point of view of the search for surplus profits, see for example Joe Bain, Barriers to New Competition, Cambridge, Mass., 1956; Paolo SylosLabini, Oligopolio e progresso tecnico, Turin, 1964; Robert Dorfman, Prices and Markets, New York, 1967.

Humanity assuring its subsistence by social labour total labour potential of community private labour not directly social, arising out of growing division of labour

necessary, directly sociallabour

surplus labour embodied in use-values, assuring slow rise in productivity

use-values pure and simple

private appropriation of those; appearance and development of -

Q

§

S'

private property

I v value assuring social character of private labour through exchange

commodity production use-value

private appropriation of means of production and livelihood

money money capital

value in constant search of incre- • ment in value (self-expansion)

capital entering sphere of production

t

•

constant transformation of part ofsurplus-value into additional capital: t > | accumulation of capital

t

realization of value and surplusvalue (expanded reproduction) only possible through actual sale of commodities (reproduction, unity of production and circulation process)

wage-labour surplus labour becomes

I

producing

wages

ll tendency to. constant revolutions in techniques of production; increase in the organic composition of capital

equalization of rates 'of profit; division of surplusvalue into profits, interest, rents, taxes

capital appears as many capitals: competition

countervailing forces, mainly tendency to increase in rate of profit

tendency of average rate of profit to decline

I class struggle at h

4 growing difficulty of maintaining market economy, value production and realization, under conditions of growing automation

labour-power becomes a commodity

necessary labour performed by