Political Economy - accumulation of capital

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IX. Accumulation of Capital and Impoverishment of the Proletariat.

If it is to live and develop, society must produce material wealth. It cannot stop producing, as it cannot stop consuming.

From day to day and year to year people consume bread, meat and other foodstuffs, and wear out clothes and footwear but at the same time fresh masses of bread, meat, cloth footwear and other products are being produced by human labour. Coal is being burnt in stoves and furnaces but at the same time fresh masses of coal are being drawn from the bowels of the earth. Machine-tools gradually wear out, locomotives sooner or later become decrepit, but fresh machine-tools are being built in the factories and fresh locomotives are being made. Under any system of social relations the process production must continually be renewed.

This continued renewal and ceaseless repetition of the production-process is reproduction. “When viewed, therefore, as a connected whole, and as flowing on with incessant renewal, every social process of production is at the same time a process of reproduction." (Marx, Capital, Kerr edition, vol. 1, p. 620) Whatever the conditions of production are, so also are the conditions of reproduction. If production is capitalist in form, then reproduction takes this form too.

The process of reproduction consists not only in people making ever fresh masses of products in place of, and in excess of, those consumed, but also in the fact that the corresponding production-relations in society are constantly being renewed.

Two types of reproduction must be distinguished: simple and extended.

Simple reproduction means repetition of the production-process on the same scale as before, the newly-produced products merely replacing the means of production and consumer goods which have been expended.

Extended reproduction means repetition of the production-process on an enlarged scale, when society does not merely replace the material wealth which has been consumed but also produces additional means of production and consumer goods over and above this.

Before the rise of capitalism the productive forces developed very slowly. The dimensions of social production changed little from year to year and from decade to decade. Under capitalism the former scarcely-moving, stagnant state of social production gave place to a much more rapid development of productive forces. Typical of the capitalist mode of production is extended reproduction which is interrupted by economic crises, when production falls off.
Capitalist Simple Reproduction

Under capitalist simple reproduction the production-process is renewed without change of volume, the surplus-value being spent entirely on personal consumption by the capitalists.

An examination even of simple reproduction enables one to look more closely into some of the essential features of capitalism.

In the process of capitalist reproduction it is not only the products of labour that are incessantly being renewed but also the relations of capitalist exploitation. On the one hand, in the course of reproduction wealth is constantly being created; this belongs to the capitalist and he uses it to appropriate surplus-value. At the expiration of each production-process the employer appears, again and again, as the owner of capital which enables him to enrich himself by exploiting workers. On the other hand, the worker constantly emerges from the production-process as a propertyless proletarian and is therefore obliged, if he is not to die of hunger, again and again to sell his labour-power to the capitalist. Reproduction of hired labour-power always remains a necessary condition for the reproduction of capital.

“Capitalist production therefore, of itself reproduces the separation between labour-power and the means of labour. It thereby reproduces and perpetuates the condition for exploiting the worker. It incessantly forces him to sell his labour-power in order to live, and enables the capitalist to purchase labour-power in order that he may enrich himself." (Marx, Capital, Kerr edition, vol. 1, p. 623.)

Thus, the fundamental relationship of capitalism is continually renewed in the process of production: the capitalist on the one hand and the wage-worker on the other. Even before he sells his labour-power to one employer or another, the worker already belongs to the combination of capitalists, i.e., to the class of capitalists as a whole. When the proletarian changes his place of work, he only exchanges one exploiter for another. The worker is chained for life to the chariot of capital.

If we examine a single process of production, it seems at first sight as though the capitalist, when he buys labour-power, is advancing money to the worker from his own funds, since at the time when he pays the worker his wages the capitalist may not yet have had time to sell the commodity which the worker has produced in the period for which he is paid (a month, say). But if we take the buying and selling of labour-power, not in isolation but as an element of reproduction, as a continually repeated relationship, then the true character of this transaction is revealed.

First of all, while the worker’s labour is creating new value, including surplus-value, in this period the product turned out by the worker in the preceding period is being realised on the market and transformed into money. Hence, it is clear that the capitalist pays the worker his wages not out of his own pocket but out of the value which the worker’s labour has created in the preceding period of production (e.g., during the previous month). To use Marx’s expression, the capitalist class acts on the time-honoured principle of the conqueror: it buys commodities from the conquered with their own money, of which it has robbed them.

Secondly, unlike what happens with other commodities, labour-power is paid for by the capitalist only after the worker has performed a certain amount of labour. So it turns out that it is not the capitalist who makes an advance to the proletarian, but, on the contrary, it is the proletarian who makes an advance to the capitalist. For this reason employers endeavour to pay wages at as long intervals as possible, so prolonging the time during which they are receiving free credit from the workers.

The capitalist is continually supplying the workers, in the form of wages, with money for purchasing the means of subsistence, i.e., with a certain part of the product which the workers’ labour has created and which has been appropriated by the exploiters. This money the workers no less regularly give back to the capitalists, receiving in exchange for it the means of subsistence which the working class itself has produced.

An examination of capitalist relations in the course of reproduction reveals not only the real source of wages but also the real source of all capital.

Let us suppose that a capital of 100,000 invested by an entrepreneur brings in annually surplus-value to the amount of 10,000, and that the whole of this sum is spent entirely by the capitalist on his personal consumption. If the entrepreneur did not appropriate the worker’s unpaid labour, his capital would be completely exhausted after ten years had elapsed. This does not happen because the sum of 100,000 which is spent by the capitalist on his personal consumption during this period is completely renewed from the surplus-value created by the unpaid labour of the workers.

Consequently, whatever might be the original source of a given capital, in the course of simple reproduction itself this capital becomes within a certain period value created by the workers’ labour and appropriated without compensation by the capitalist. This exposes the absurdity of the assertions made by bourgeois economists that capital is wealth created by the employer’s own labour.

Simple reproduction is a constituent part or element of extended reproduction. The relations of exploitation which are inherent in capitalist simple reproduction become still accentuated under conditions of capitalist extended reproduction.
Capitalist Extended Reproduction. Accumulation of Capital

Under extended reproduction a part of the surplus-value is put back by the capitalist in order to increase the scale of production: for the purchase of additional means of production and the hiring of additional workers. Thus, part of the surplus-value is amalgamated with already existing capital, i.e., is accumulated.

The accumulation of capital means the addition of part of the surplus-value to capital, or the transformation of part of the surplus-value into capital. Thus it is surplus-value that provides the source of accumulation. Capital grows through the exploitation of the working class, and along with it capitalist production-relations are reproduced on an extended basis.

Among the compelling motives for accumulation of capital is, first and foremost, the striving to increase surplus-value. Under the capitalist mode of production greed for gain knows no limits. As the extent of production grows, so grows the mass of surplus-value appropriated by the capitalist, and consequently, so also grows that part of it which goes to satisfy the personal requirements and whims of the capitalists. On the other hand, the capitalists are enabled, at the expense of the growing amount of surplus-value, to extend production more and more, to exploit an ever greater number of workers and to , appropriate an ever-increasing mass of surplus-value.

Another motive force in the accumulation of capital is the ferocious competitive struggle, in the course of which the larger capitalists find themselves in a better position than the others and strike down the small ones. Competition forces every capitalist, under penalty of ruin, to improve his technique and extend production. To stop the growth of technique and the extension of production means to lag behind, and those who lag behind are conquered by their competitors. Thus, the competitive struggle compels every capitalist to increase his capital, and he can increase his capital only by continually accumulating part of the surplus-value.

The accumulation of capital is the source of extended reproduction.
Organic Composition of Capital. Concentration and Centralisation of Capital

In the course of capitalist accumulation the total mass of capital grows, but the different parts into which it is divided do not change at the same rate and consequently the composition of capital changes.

When he accumulates surplus-value and extends his enterprise, the capitalist usually introduces new machinery and technical improvements, because these promise him an increase in his profits. The development of technique means a more rapid growth of that part of capital which exists in the form of means of production-machinery, buildings, raw materials, i.e., constant capital. On the other hand, that part of capital which is spent on the purchase of labour-power, i.e., variable capital, grows much more slowly.

The proportion between constant and variable capital, being determined by the proportion between the mass of means of production and of living labourpower, is called the organic composition of capital. Let us take, for example, a capital of 100,000. Suppose that of this sum 80,000 is spent on buildings, machinery, raw materials, etc., and 20,000 on wages. The organic composition of this capital is, then, 80 c : 20 v, or 4 : 1.

In different branches of industry and in different enterprises within one and the same branch the organic composition of capital varies: it is higher where there are more complex and costly machines and more worked up material per worker; it is lower where living labour predominates and the amount of machinery and material per worker is less and is comparatively inexpensive. With the accumulation of capital the organic composition of capital grows: the share of variable capital declines while that of constant capital increases. Thus, in the industry of the U.S.A. the organic composition of-capital, which in 1889 was 4.4 : 1, was 5.7 : 1 in 1904, 6.1 : 1 in 1929, and 6.5 : 1 in 1939.

The size of individual capitals grows in the course of capitalist reproduction. This occurs through the concentration and centralisation of capital.

The concentration of capital means the growth in the size of capital as a result of the accumulation of surplus-value obtained in the given enterprise. The capitalist becomes, through investing in his enterprise part of the surplusvalue which he has appropriated, the owner of an ever larger capital. The centralisation of capital means the growth in the size of capital as a result of fusing several capitals into one larger capital. In the competitive struggle large capital ruins and devours smaller and medium capitalist enterprises which cannot stand up to competition. By buying up the enterprises of his ruined competitor at low prices, or annexing them to his own by some other method (e.g., by means of loans), the large-scale factory-owner increases the amount of capital in his possession. The union of many capitals into one is effected also by the forming of joint-stock companies, etc.

Concentration and centralisation of capital mean the concentrating of monstrous amounts of wealth in the hands of a few persons. The enlargement of capitals opens wide possibilities for the concentration of production, i.e., for the gathering together of production in large-scale enterprises.

Large-scale production has decisive advantages over small. Large-scale enterprises can introduce machinery and technical improvements, and can apply a broad division and specialisation of labour which is beyond the resources of small concerns. This results in products being turned out more cheaply in large-scale enterprises than in small-scale ones. The competitive struggle involves great expenses and losses. A large-scale concern can bear these losses and later recover them with interest; whereas small and even medium ones are ruined by them. Large capitalists are able to obtain loans with comparatively much greater ease, and on more favourable conditions; and credit is one of the chief weapons used in the competitive struggle. Owing to all these advantages which they possess it is large concerns, equipped with powerful technique, that increasingly come to the forefront in the capitalist countries, while a multitude of small and medium concerns go down in ruin. As a result of the concentration and centralisation of capital a few capitalists, the owners of enormous fortunes, become masters of the fate of tens and hundreds of thousands of workers.

Capitalist concentration in agriculture leads to the land and other means of production becoming increasingly concentrated in the hands of large propertyowners, while broad strata of small and middle peasants, deprived of land, draught animals and implements, fall into debt-bondage to capital. Masses of peasants and craftsmen are ruined and transformed into proletarians.

The concentration and centralisation of capital thus lead to sharpening of class contradictions, to deepening of the gulf between the bourgeois, exploiting minority and the propertyless, exploited majority of society. The concentration of production also results in ever greater masses of the proletariat being concentrated in large capitalist enterprises, in industrial centres. This facilitates the welding together of the workers and their organisations for the struggle against capital.
The Industrial Reserve Army

The growth of production under capitalism, as mentioned already, is accompanied by a rise in the organic composition of capital. The demand for labour-power is determined by the size, not of capital as a whole, but only of its variable part. But the variable part of capital declines, compared with constant capital, as technical progress advances. Therefore as capital accumulates and its organic composition increases, the demand for workers relatively contracts, although the total numbers of the proletariat grow in proportion as capitalism develops.

As a result, a substantial mass of workers are unable to find application for their labour. Part of the working population becomes “redundant", forming the so-called relative surplus-population. This surplus-population is relative because part of the labour-power available is surplus only in relation to the requirements of the accumulation of capital. Thus, in bourgeois society, as social wealth grows, one section of the working class is doomed to ever heavier and more excessive labour while the other section is doomed to compulsory unemployment.

The following main forms of relative surplus-population must be distinguished:

The fluctuating surplus-population is made up of workers who lose their jobs for a certain period as a result of a contraction of production, introduction of new machinery or the closing down of enterprises. As production is extended, a section of these unemployed workers find work, just as do some of the workers newly coming forward from the rising generation. The total number of workers employed grows, but in constantly diminishing proportion compared with the scale of production.

The latent surplus-population consists of ruined small producers, predominantly poor peasants and landworkers, who are employed in agriculture during only a small part of the year, cannot find application for their labour in industry and drag out a miserable existence in the countryside living from hand to mouth somehow or other. In contrast to what happens in industry, in agriculture the growth of technique leads to the demand for labour declining absolutely.

The stagnant surplus-population is formed by these numerous groups of people who have lost regular work, are employed extremely irregularly and are paid a great deal less than theusual rate of wages. These consist of the extensive strata of the working people employed in capitalist domestic industry and also those living by casual day-today work.

Finally, the lowest stratum of relative surplus-population is constituted by people who have been pushed out of productive life over a long period, without any hope of recovering their position, and live by casual earnings. A section of these people get their living by begging.

Workers squeezed out of production constitute the industrial reserve armythe army of unemployed. This army is a necessary appendage of capitalist economy, without which it can neither exist nor develop. In periods of industrial boom, when a rapid extension of production is required, there is a sufficient number of unemployed at the disposal of the employers. As a result of the extension of production unemployment is temporarily reduced. But later a crisis of overproduction occurs, and once again considerable masses of workers are thrown on to the street, to reinforce the reserve army of the unemployed.

The existence of the industrial reserve army enables the capitalists to intensify their exploitation of the workers. Unemployed workers have to accept the most onerous conditions of work. The presence of unemployment creates an unstable situation for the employed workers and sharply reduces the standard of life of the working class as a whole. That is why the capitalists are not interested in abolishing the industrial reserve army, which exercises pressure on the labour market and ensures them a supply of cheap labour power.

As the capitalist mode of production develops, the army of unemployed, which declines in periods of boom and grows in periods of crisis, on the whole increases.

In Britain the percentage of unemployed among members of trade unions was: in 1853-1.7 per cent, in 1880-5.5 per cent, in 1908-7.8 per cent, in 1921-16.6 per cent. In the U.S,A., according to official figures, the percentage of unemployed in the working class as a whole was: in 1890-5.1 per cent, in 1900-10 per cent, in 1915-15.5 per cent, in 1921-23.1 per cent. In Germany the percentage of trade unionists out of work grew from 0.2 per cent in 1887 to 2 per cent in 1900 and 18 per cent in 1926. The volume of the relative surplus-population is enormous in the countries of the colonial and semi-colonial East.

As capitalism develops, partial unemployment, under which a worker is employed in production for only part of the day or only part of the working week, assumes bigger and bigger proportions.

Unemployment is a real scourge to the working class. The worker can only live by selling his labour-power. Workers dismissed from the factories face starvation. Often the unemployed have to go without shelter because they have not the means to pay for a night’s lodging. Thus, the bourgeoisie shows itself unable to guarantee the wage-slaves of capital a slave’s standard of living.

Bourgeois economists try to justify the existence of unemployment under capitalism by references to eternal laws of nature. This was the aim served by the pseudo-scientific fabrications of Malthus a reactionary British economist who flourished at the end of the eighteenth century and the beginning ‘of the nineteenth century. According to the “law of population" invented by Malthus, the population, from the very beginning of human society has increased in geometrical progression (as 1, 2, 4, 8, etc). but the means of subsistence, owing to the limitations of natural resources, have grown only in arithmetical progression (as 1, 2, 3, 4, etc.) This, said Malthus, was the fundamental cause of the existence of surplus-population and of starvation and want among the masses of the people. The proletariat, in Malthus’s opinion; can free itself from poverty and hunger not by abolishing the capitalist system but by abstaining from marriage and artificially restricting childbearing. Malthus considered wars and epidemics beneficial, since they cut down the working population. The theory of Malthus is profoundly reactionary. It is a means whereby the bourgeoisie justifies the incurable taints of capitalism. Malthus’s fabrications have nothing in common with reality. The mighty technique which mankind has at its disposal is capable of increasing the amount of means of life at rates which cannot be overtaken by even the fastest growth of population, But this is prevented by the capitalist system, which is the real Cause of the poverty of the masses.

Marx discovered the capitalist law of population, which is that in bourgeois society the accumulation of capital leads to a section of the workers inevitably becoming relatively surplus and being thrust out of employment and doomed to suffer poverty and want. The capitalist law of population is engendered by the production relations of bourgeois society.
Agrarian Surplus-Population

As already mentioned, one of the forms of the relative surplus-population is the latent, or agrarian surplus-population.

The agrarian surplus-population is the excess population in the agricultural economy of the capitalist countries, which arises as a result of the ruin of masses of the peasantry; these people can find only partial employment in agricultural production and cannot be absorbed into industry.

As capitalism develops, the differentiation among the peasantry is intensified. A numerous army of agricultural workers and poor peasants is formed. Large-scale capitalist economy creates a demand for wage-workers. But in proportion as capitalist production lays hold of one branch of agriculture after another and the use of machinery becomes widespread, the mass of the peasants are more and more ruined and the demand for agricultural wageworkers is reduced. The ruined sections of the rural population are continually being transformed into industrial proletarians or reinforce the army of unemployed in the cities. A considerable part of the rural population, unable to find work in industry, remain in the country, where only occasionally do they find employment in agriculture.

The latent character of the agrarian surplus-population consists in the fact that surplus labour-power in the countryside is always connected in some degree or another with small and very small peasant economy. The agricultural wage-worker usually has a small holding which serves as a means of supplementing his earnings when he is in employment, or as the source of a miserable livelihood when the is out of it. Such holdings are needed by capitalism, so that it may have cheap labourers at its disposal.

The agrarian surplus-population attains huge dimensions under capitalism. In Tsarist Russia at the end of the nineteenth century latent unemployment in the countryside embraced 13,000,000 persons. In Germany in 1907, out of 5,000,000 peasant households, 3,000,000 petty ones formed a reserve army of labour. In the U.S.A. in the 1930’s official data, obviously tending towards under-estimation, showed 2,000,000 “superfluous" farmers. Every year in the summer months between 1,000,000 and 2,000,000 American agricultural workers, taking their families and household goods with them wander about the country in search of work.

The size of the agrarian surplus-population is especially large in the colonial countries. Thus, in India, where about three-quarters of the population are engaged in agriculture, the agrarian surplus-population constitutes an army many millions strong. A considerable section of the rural population is made up of people who are in a state of chronic semi-starvation; every year several millions of people die of hunger and epidemics.
The General Law of Capitalist Accumulation.
Relative and Absolute Impoverishment of the Proletariat

The development of capitalism leads, with the accumulation of capital, to enormous wealth being concentrated in few hands at one pole of bourgeois society, with a growth in luxury and parasitism, dissipation and idleness among the exploiting classes; while at the other pole the burden of exploitation becomes continually more intense, and unemployment and poverty increases among those whose labour is the creator of all wealth.

“The greater the social wealth, the functioning capital, the extent and energy of its growth, and therefore also the absolute mass of the proletariat and the productiveness of its labour, the greater is the industrial reserve army.... The relative mass of the industrial reserve army increases therefore with the potential energy of wealth. But the greater this reserve army in proportion to the active labour army, the greater is the mass of a consolidated surplus-population whose misery is in inverse ratio to its torment of labour... This is the absolute, general law of capitalist accumulation." (Marx, Capital, Kerr edition, vol. 1, p. 707.)

The general law of capitalist accumulation gives concrete expression to the operation of the basic economic law of capitalism-the-law of surplus-value. The striving to increase surplus-value leads to an accumulation of wealth in the hands of the exploiting classes and to the growth of impoverishment and degradation of the propertyless classes.

As capitalism develops, a process of relative and absolute impoverishment of the proletariat takes place.

Relative impoverishment of the proletariat means that in bourgeois society the working class’s share of the total national income steadily decreases, while at the same time the share 01 the exploiting classes steadily grows.

Notwithstanding the absolute growth of social wealth, the relative weight of the incomes received by the working class sharply declines. Workers’ wages in American industry, shown as a percentage of capitalists’ profits, were in 1889-70 per cent, in 1918-61 per cent, in 1929-47 per cent and in 1939-45 per cent.

In Tsarist Russia the total amount of nominal wages grew by nearly 80 per cent between 1900 and 1913 as a result of the increase in the number of industrial workers (real wages falling the while), but the profits of the industrialists grew more than threefold.

According to bourgeois economists’ figures, in the U.S.A. in the 1920’s 1 per cent of the property-owners possessed 59 per cent of all the wealth, while the poorest sections which made up 87 per cent of the population owned only 8 per cent of the national wealth.

In 1920-1 the largest property-owners of Britain, who made up less than 2 per cent of the total number of property-owners, concentrated 64 per cent of all the country’s national wealth in their hands, while 76 per cent of the population possessed only 7.6 per cent of it.

Absolute impoverishment of the proletariat means the direct lowering of its standard of living.

“The worker is impoverished absolutely, i.e., becomes directly poorer than before, is forced to live worse, to eat more meagrely, to go without food for longer periods, to be coop up in cellars and garrets… “Wealth increases in capitalist society with incredible speed-alongside the impoverishment of the working masses." (Lenin, “Impoverishment in Capitalist Society, Works, Russian edition, vol. XIII, pp. 405-6.)

Seeking to whitewash capitalist reality, bourgeois political economy tries to deny the absolute impoverishment of the proletariat. Facts, however, prove that under capitalism workers’ standard of living continually declines. This is shown in many ways.

Absolute impoverishment is expressed in the fall in real wages. As mentioned above, the increase in the prices of articles of mass consumption, the rise in rents and the growth of taxes cause the real wages of the workers to fall.

Absolute impoverishment of the proletariat is expressed in the increase in the amount of unemployment and in its duration.

Absolute impoverishment of the proletariat is expressed in the growth in the intensity of labour and deterioration of working conditions, which lead to the worker ageing rapidly, losing his capacity for work, and becoming disabled. In connection with the growth in the intensity of labour and the absence of needful measures for ensuring safety at work an increase takes place in the number of accidents and injures at work.

Absolute impoverishment of the proletariat is shown in the acute deterioration in the nutrition and housing conditions of the working people, which results in the undermining of their health, an increase in the death-rate and a reduction in the expectation of life among the working-class people.

In the coal industry of the U.S.A. between 1878 and 1914 the number of accidents at work entailing fatal consequences increased by 71.5 per cent. In the course of 1952 alone about 15,000 persons were killed and over 2,000,000 injured in the U.S.A. in the course of their employment. In the British coal industry before the war one miner in every six was every year the victim of an accident, but for 1949-53 the figure was one miner in every three.

According to the official data provided by the housing census, about 40 per cent of all dwelling-houses in the U.S.A. fail to come up to the minimum standards of sanitation and safety. The mortality rate among the working-class population is much higher than that amongst the ruling classes. Infant mortality in the slums of Detroit is six times greater than the average for the U.S.A.

The standard of living of the proletariat is particularly low in the colonial countries, where extreme poverty and the extraordinarily high mortality among the workers as a result of their exhausting labour and chronic hunger take on a mass character.

The living standard of the poorest peasantry under capitalism is not higher but often even lower, than that of the wage-workers. In capitalist society there takes place not only the absolute and relative impoverishment of the proletariat but also the ruin and impoverishment of the basic masses of the peasantry. In Tsarist Russia there were several tens of millions of starving rural poor. According to the data of American censuses, during recent decades about two-thirds of the farm population of the U.S.A., as a rule, has lacked the minimum needed for subsistence. For this reason, the vital interests of the peasants themselves impel the latter to join forces with the working class.

The path of development of capitalism is one of impoverishment and semistarvation for the great majority of the working people. Under the bourgeois order the growth in the productive forces brings the working class not an easing of their position but increased poverty and privations.

At the same time the struggle of the working class against the bourgeoisie, to overthrow the yoke of capital, develops, and its consciousness and degree of organisation grows. The mass of the peasantry are increasingly drawn into this struggle.
The Basic Contradiction of the Capitalist Mode of Production

In proportion as capitalism develops, it links together the labour of multitudes of people ever more closely. The social division of labour increases. Separate, more or less independent branches of industry are transformed into a whole series of mutually connected and inter-dependent branches. The economic connections between separate enterprises, districts and entire countries grow to an enormous extent.

Capitalism creates large-scale production both in industry and in agriculture. The development of the productive forces engenders such instruments and methods of production that they demand the joint labour of many hundreds and thousands of workers. Production becomes continually more concentrated. In this way capitalist socialisation of labour and of production takes place.

This growing socialisation of labour occurs, however, in the interests of a few private entrepreneurs who strive to increase their own profits. The product of the social labour of millions of people becomes the private property of the capitalists.

Consequently, a profound contradiction is inherent in the capitalist system:production is a social matter, whereas the ownership of the means of production remains private, capitalistic, and so is incompatible with the social character of production. The contradiction between the social character of production and the private, capitalist form of appropriation of the results of production is the basic contradiction of the capitalist mode of production, and becomes continually more acute as capitalism develops. This contradiction is expressed in the intensified anarchy of capitalist production, in the growth of class antagonisms between the proletariat and the working masses as a whole, on the one hand, and the bourgeoisie on the other.
BRIEF CONCLUSIONS

(1) Reproduction is the continual renewal and ceaseless repetition of the production-process. Simple reproduction means renewal of production on an unchanged scale. Extended reproduction means renewal of production on an enlarged scale. Typical of capitalism is extended reproduction, interrupted by periodical economic crises, when production declines. Capitalist extended reproduction means continual renewal and deepening of the relations of exploitation.

(2) Extended reproduction under capitalism presupposes accumulation of capital. Accumulation of capital means the fusion of part of surplus-value with capital, or the transformation of part of surplus-value into capital. Capitalist accumulation leads to an increase in the organic composition of capital, i.e., to the more rapid growth of constant capital as compared with variable capital. During capitalist reproduction the concentration and centralisation of capital takes place. Large-scale production has decisive advantages over small, by virtue of which the large and very large enterprises oust and subject to themselves the small and medium capitalist concerns.

(3) With the accumulation of capital and the growth in its organic composition the demand for workers is relatively reduced. An industrial reserve army of unemployed is formed. The excess of labour-power in capitalist agriculture produced by the ruin of the basic masses of the peasantry leads to the creation of an agrarian surplus-population. The general law of capitalist accumulation is the concentration of wealth in the hands of the exploiting minority and the growth of poverty among the working people, i.e., the overwhelming majority of society. Extended reproduction under capitalism leads inevitably to relative and absolute impoverishment of the working class. Relative impoverishment means the decline in the share taken by the working class of the national income in the capitalist countries. Absolute impoverishment is the direct lowering of the standard of living of the working class.

(4) The fundamental contradiction of capitalism is the contradiction between the social character of production and the private, capitalist form of appropriation. As capitalism develops, this contradiction becomes more and more acute, deepening the class antagonisms between bourgeoisie and proletariat.

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X. Rotation and Turnover of Capital

Three Forms of Industrial Capital

One of the conditions of existence of the capitalist mode of production is developed commodity circulation, i.e., exchange of commodities through the medium of money. Capitalist production is inseparably connected with circulation.

Every individual capital begins its career as a certain sum of money, it appears as money capital. The capitalist uses money to buy commodities of certain kinds: (1) means of production, (2) labour-power. This act of circulation can be expressed like this:
M-C <L/Pm.

In this diagram M stands for money, C for the commodity, L for labourpower, and Pm for means of production. As a result of this change of form which his capital has undergone, its owner has at his disposal everything he needs for production. Whereas previously he owned capital in the form of money, he now owns capital to the same amount but in the form of productive capital.

So the first phase in the movement of capital is the transformation of money capital into productive capital.

Following this begins the process of production, in which there takes place the productive consumption of the commodities which the capitalist has bought. It is expressed in the fact of the workers expending their labour, the raw material being worked up, fuel being burnt and machinery wearing out.

Capital changes its form once again: as a result of the production-process the capital invested appears embodied in a certain mass of commodities, it assumes the form of commodity capital. However, in the first: place, these are not the same commodities which the capitalist bought when he started up in business, and secondly, the value of this mass of commodities is greater than the original value of his capital, for in it is contained the surplus-value produced by the workers.

This stage in the movement of capital can be shown like this:
C <L/Pm ... P ... C’.

Here the letter P stands for production and the dots before and after it show. that the process of circulation has been interrupted and a process of production is taking place, while C’ stands for capital in the form of commodities, the value of which has grown as a result of the workers surplus labour.

Thus the second phase in the movement of capital consists of the transformation of productive capital into commodity capital.

Capital does not stop short with this movement. The commodities which have been produced have to be realised. In exchange for the commodities which he sells the capitalist receives a certain sum of money.

This act of circulation may be depicted like this:
C’ - M’.

Capital changes its shape a third time: it once more assumes the form of money capital. At the end of this process its owner has a larger sum of money than he had at the beginning. The aim of capitalist production, which is to extract surplus-value, has been attained.

Thus the third stage in the movement of capital consists in the transformation of commodity capital into money capital.

Having received money for the commodities he has sold, the capitalist spends it once again on buying the means of production and labour-power needed for further production, and the entire process starts anew.

These are the three phases through which capital passes successively in the course of its movement. In each of these phases. capital .fulfils a corresponding function. The transformation of money capital into the elements of productive capital ensures the union of the means of production which belong to the capitalists with the labour-power of the wage-workers: unless such a union is effected the process of production cannot take place. The function of productive capital is to create, with the labour of the wage-workers, masses of commodities, new value, and consequently, surplus-value. The function of commodity capital is, through the sale of the mass of commodities which has been produced, first, to return to the capitalist in money form the capital which he invested in production and, second, to realise in money form the surplus-value created in the process of production.

Industrial capital passes through these three phases in the course of its movement. By industrial capital we mean, in this instance, all capital which is used for the production of commodities, regardless of whether industry or agriculture is meant.

“Industrial capital is the only form of existence of capital in which not only the appropriation of surplus-value or surplus product but also its creation is a function of capital. Therefore it gives to production its capitalist character. Its existence includes that of class antagonisms between capitalists and labourers." (Marx, Capital, Kerr edition, vol. II, p. 63.)

Consequently, all industrial capital performs a rotatory movement.

By the rotation if capital is meant the successive transformation of capital from one form into another, its movement, which includes three phases. Of these phases, the first and third take place in the sphere of circulation, while the second belongs to that of production. Without circulation, that is, without transformation of commodities into money and then of money back into commodities, capitalist reproduction, i.e., the constant renewal of the production-process, would be unthinkable.

The rotation of capital as a whole can be shown in the following form:
M - C <… P/Pm … P … C’ … M’.

All three stages of the rotation of capital are very closely interconnected and mutually dependent. The rotation of capital proceeds normally only so long as its various phases flow uninterruptedly one into the other.

If capital stops short in its first phase, this means it drops into a barren existence as money capital. If the hold-up occurs in the second phase, this means that the means of production remain lifeless and labour-power remains unemployed. If capital stops short in its last phase, unsold commodities accumulate in the warehouses and clog the channels of circulation.

It is the second phase, when it is in the form of productive capital, that is of decisive importance in the rotation of industrial capital; in this phase takes place the production of commodities, value and surplus-value. In the other two phases value and surplus-value are not created; in them only a change in the form of capital takes place.

To the three phases of the rotation of capital correspond three forms of industrial capital: (I) money capital, (2) productive capital and (3) commodity capital.

Every capital exists simultaneously in all of these forms: at the same time as one part of it appears as money capital being transformed into productive capital, another part appears as productive capital being transformed into commodity capital, and a third part appears as commodity capital being transformed into money capital. Each part of it in turn assumes and discards, one after another, all three of these forms. This is true not only of each capital taken separately but also of all capitals taken together or, in other words, of the aggregate social capital. Therefore, Marx declares, capital can be understood only as a movement and not as a thing lying at rest.

This includes the possibility of distinct existence of the three forms of capital. Later on it will be shown how merchant capital and loan capital are separated off from capital employed in production. It is this distinction that provides the basis for the existence of the different groups of the bourgeoisie—manufacturers, merchants bankers-who share out the surplus-value among themselves.
Turnover of Capital. Time of Production and Time of Circulation

Every capital undergoes rotation as an uninterrupted, constantly repeated process. In this way capital is turned over.

By the turnover of capital is meant its rotation, considered not as a momentary act but as a periodically renewed and repeated process. The period of turnover of capital is the sum of the time of production and the time of circulation. In other words, the period of turnover is the interval of time which elapses between the moment when the capital is invested in a certain form to the moment when it returns to the capitalist in the same form but increased by the amount of the surplus-value.

The time of production is the time during which the capital is in the sphere of production. The principal part of the time of production is the working period during which the object being worked up undergoes directly the operation of labour. The working period depends on the nature of the given branch of production, the level of technique in the particular enterprise, and other conditions. For example, in a spinning mill not more than a few days are needed for a certain quantity cotton to be transformed into yarn, ready to be sold, whereas in a locomotive-building works the completion of each locomotive requires the work of a large number of workers over long period.

The time of production is usually longer than the working period. It includes as well those breaks in the work during which the object of labour is undergoing the operation of certain natural processes such as, e.g., the fermentation of wine, the tanning of skins, the growth of wheat, etc.

The time of circulation is the time during which capital is being transformed from the money form into the productive form and from that into the money form. The length of the time of circulation depends on the conditions under which the purchase of means of production and the sale of completed commodities, are carried out, on the proximity of the market and on the level of development of the means of transport and communication.
Fixed and Circulating Capital

The various parts of productive capital do not circulate in the same way.

The different ways in which separate parts of productive capital circulate derive from the different ways in which each of them transfers its value to the product. This underlies the division of capital into fixed and circulating.

By fixed capital is meant that part of productive capital which, though it fully takes part in production, transfers its value to the product not all at once but in parts, during the course of a series of periods of production. This is that part of capital which is spent on the erection of buildings and works and on the purchase of machinery and equipment.

The various elements of which fixed capital is composed usually serve the purpose of production over many years; they wear out to a certain degree every year and at last are found useless for further employment. This is what is meant by the physical depreciation of machinery and equipment.

Besides physical depreciation, the instruments of production also undergo a moral depreciation. A machine which has been in use for five or ten years may be still sound enough, but if during that period another, improved, more productive or cheaper machine of the same kind has been invented, this leads to the depreciation of the old machine. For this reason the capitalist is interested in completely using up his equipment in the shortest possible period of time. Hence the capitalists’ endeavours to lengthen the working day, to intensify labour, and to introduce uninterrupted shift work in their enterprises.

By circulating capital is meant that part of productive capital the value of which during a single period of production is completely returned to the capitalist in the form of money when the commodities are realised. This is that part of capital which is spent on the purchase of labour-power, and also of raw material, fuel and auxiliary materials, i.e., those means of production which do not form part of fixed capital. The value of the raw material, fuel and auxiliary materials is fully transferred to the commodities during a single period of production, and the outlay on labour-power returns to the capitalist with an increase (an addition of surplus-value).

During the time that it takes for fixed capital to complete a single turnover, circulating capital manages to complete a number of turnovers.

When he sells his commodities, the capitalist receives a certain sum of money, which is made up of: (1) the value of that part of the fixed capital which has been transferred to the commodities in the process of production, (2) the value of the circulating capital, (3) the surplus-value. So as to keep production going, the capitalist uses once more part of the money he has received, corresponding to circulating capital, to hire workers and to buy raw material, fuel and auxiliary materials. The capitalist Uses part of the money corresponding to the part of his fixed capital which has been transferred to the commodities, to replace depreciation in his machinery, machine-tools, buildings, etc., i.e., for amortisation.

Amortisation means the gradual replacement in money form of the value of fixed capital, through periodical deductions corresponding to the extent of its depreciation. Part of the amortisation deductions is spent on capital repairs, i.e., on partial replacement of worn-out equipment, tools, factory buildings, etc. But the bulk of the amortisation deductions is kept by the capitalists in money form (usually in the banks) so as to be able when necessary, to buy new machinery in place of the old or to erect new buildings to replace those which have become unfit for further use.

Marxist political economy distinguishes between the division of capital into fixed and circulating and its division into constant and variable. Constant and variable capital differ from each other in the roles which they play in the process whereby the workers are exploited by the capitalists, whereas fixed and circulating capital differ in the manner in which they circulate.

These two ways of dividing capital may be shown in the following fashion :



Bourgeois political economy recognises only the division of capital into fixed and circulating, since this way of dividing capital does not in itself show the role of labour power in creating surplus-value, but, on the contrary, conceals the radical difference between the capitalist’s expenditure on the hiring of labour-power and that on raw material, fuel, etc.
Annual rate of Surplus-Value. Ways of Accelerating the Turnover of Capital

The speed with which a given amount of variable capital is turned over has a bearing on the amount of surplus-value which a capitalist can extract from his workers during a year.

Let us take two capitals, in each of which the variable part is 25,000 dollars, the rate of surplus-value being in each case 100 per cent. Let us suppose that one of them is turned over once in one year whereas the other is turned over twice. This means that the owner of the second capital, though he possesses the same amount of money, is able to hire and exploit during one year twice as many workers as the owner of the first. At the end of a year, therefore, the results shown by the two capitalists will differ. The first will receive 25,000 dollars of surplus-value, while the second will receive 50,000.

The rapidity of the turnover of capital also has a bearing correspondingly on the size of that part of the circulating capital which is laid out for buying raw material, fuel and auxiliary materials.

The annual rate of surplus-value means the proportion which the amount of surplus-value produced per year bears to the variable capital invested. In our example the annual rate of surplus-value, expressed as a percentage, would be, in the case of the first capitalist 25,000/25,000=100 per cent, and in that of the second capitalist 50,000/25,000=200 per cent. Hence it is clear that it is to the interest of capitalists to accelerate the turnover of capital, since this acceleration enables them to obtain the same amount of surplus-value with a smaller capital or with the same capital to obtain a larger sum of surplus-value.

Marx showed that by itself the acceleration of the circulation of capital does not create a single atom of new value. More rapid turnover of capital and more rapid realisation in money form of the surplus-value created in a given year only enables the capitalists to hire with one and the same quantity of capital a larger number of workers, whose labour creates a larger amount of surplus-value per year.

As we have seen, the time of turnover of capital consists of the time of production and time of circulation. The capitalist strives to shorten the duration of both of these.

The working period necessary for the production of commodities becomes shorter as the productive forces develop and technique grows.

For example, present-day methods of smelting pig-iron and steel enable these processes to be completed many times faster, compared with the methods which were used 100-150 years ago. Noteworthy results have also been achieved by progress in the organisation of production, e.g., the transition to serial or mass production.

The interruptions in the work which form part of the time of production over and above the working period are also shortened in many cases as technique advances. Thus, the process of tanning hides formerly took weeks, but at present, thanks to the use of the latest chemical methods, it takes only a few hours. In a number of branches of production extensive use is made of catalysts, i.e., substances which speed up the action of chemical processes.

In order to accelerate the turnover of capital employers’ resort also to lengthening the working day and intensifying labour. If with a 10-hour working day the working period lasts 24 days, then a. lengthening of the working day to 12 hours shortens the working period to 20 days and correspondingly accelerates the turnover of capital. The same result is given by an intensification of labour, under which the worker expends in 60 minutes the same amount of energy as previously he expended, say, in 72 minutes.

Furthermore, the capitalists bring about an acceleration in the turnover of capital by shortening the time of circulation of capital. Such a shortening is made possible by the development of transport and of the postal and telegraph services, and by the improved organisation of trade.

But reduction. of the time of circulation is counteracted, first, by the extremely irrational distribution of production in the capitalist world, which necessitates the transport of commodities over vast distances, and, secondly, the sharpening of capitalist competition and growth of difficulties in finding markets.

The surplus-value created during a given period passes through circulation along with the circulating capital. The shorter the period of turnover of capital, the more quickly the surplus-value which the workers have created is realised in money form and the more quickly it can be used to extend production.
BRIEF CONCLUSIONS

(1)Each individual industrial capital goes through an uninterrupted movement in the form of a rotation comprising three phases. To these three phases correspond three forms of industrial capital-money, productive and commodity distinguished by their respective functions.

(2) The rotation of capital, taking place not as an isolated act but as a periodically renewed process, is called the turnover of capital. The period of turnover of capital means the sum of the time of production and the time of circulation. The principal part of the time of production is the working period.

(3) Each productive capital is divided into two parts, distinguished by the manner of their turnover: fixed capital and circulating capital. Fixed capital is the part of productive capital the value of which is transferred to commodities not all at once but little by little, during a series of periods of production. Circulating capital is that part of productive capital the value of which is in the course of a single period of production fully returned to the capitalist when the given commodities are sold.

(4) Acceleration of the, turnover of capital enables the capitalists to complete during one year, with the same capital, a greater number of turnovers, and, therefore, to hire more workers, who produce a larger amount of surplus-value. The capitalists endeavour to speed up the turnover of capital both by improving technique and, especially, by stepping up the exploitation of the workers-through lengthening the working day and intensifying labour.

XI. Average Profit and Price of Production

Capitalist Costs of Production and Profit

The Rate of Profit The surplus-value created by the labour of the wage-workers in the process of production is the source from which are drawn the incomes of all the exploiting classes of capitalist society. Let us first examine the laws by force of which surplus-value assumes the form of the profit of those capitalists who have invested their capital in the production of commodities.

The value of a commodity produced in a capitalist enterprise break down into three parts: (1) the value of the constant capital, (part of the value of the machinery and buildings, the value of the raw material, fuel, etc.); (2) the value of the variable capital; and (3) surplus-value. The magnitude of a commodity’s value is determined by the amount of socially-necessary labour required for producing it. But the capitalist does not, expend his own labour in producing the commodity, he lays out his capital for this purpose.

The capitalist costs of production of a commodity consist of the outlay of constant and variable capital (c+v), i.e., of expenditure on means of production and on workers’ wages. The cost of the commodity to the capitalist is measured by the outlay of capital, its cost to society is measured by the outlay of labour. Therefore the capitalist costs of production of a commodity are less than its value, or the real costs of its production (c+v+s). The difference between value, or real costs of production, and capitalist costs of production is equal to the surplus-value (5) which the capitalist appropriates without compensation.

When the capitalist sells a commodity which has been produced in his enterprise, surplus-value makes its appearance as a definite surplus over and above the capitalist costs of production. The capitalist sets this surplus, in determining the profitability of the enterprise, against the capital which he has advanced, i.e., all the capital invested in production. Surplus-value, placed in relation to total capital, take the form of profit.

In so far as surplus-value is compared not with variable capital only but with capital as a whole-the difference between constant capital, spent on purchasing means of production, and variable capital, spent on hiring labour-power, is hidden. As a result the deceptive appearance is created that profit is engendered by capital itself. In reality, however, the source of profit is surplus-value, created only by the workers, by labour-power, the value of which is embodied in variable capital. Profit is surplus-value compared with the total capital invested in production and appearing outwardly to be engendered by the capital. Owing to this peculiarity of profit Marx calls it the transmuted form of surplus-value..

In similar fashion as the form of wages conceals the exploitation of wage-labour, creating the false impression that all labour is paid for, so also the form of profit in its turn hides from view the relationship of exploitation, creating a misleading appearance of profit being created by capital. Thus the forms assumed by capitalist production relations obscure and mask their true nature.

The degree of profitability of a capitalist enterprise for its owner is determined by the rate of profit. The rate of profit is the proportion between the surplus-value and the total capital advanced, expressed as a percentage. For example, if the total capital advanced is 200,000 dollars, and the year’s profit amounts to 40,000 dollars, then the rate of profit = 40,000/200,000x100 or 20 per cent.

Inasmuch as the total capital advanced is greater than the variable capital, the rate of profit (s/c+v) is less than the rate of surplus-value (s/v). Suppose, in our example, that the capital of 200,000 dollars consists of 160,000 dollars of constant capital and 40,000 dollars of variable capital, then the rate of surplus is 40,000/40,000x100=100 per cent, but the rate of profit is 20 per cent, or one-fifth of the rate of surplus-value.

The rate of profit depends first of all on the rate of surplus-value.The higher the rate of surplus-value the higher, other things being equal, will be the rate of profit. All the factors which increase the rate of surplusvalue, i.e., which raise the degree of exploitation of labour by capital (lengthening the working day, raising the intensity and productivity of labour, etc.) also increase the rate of profit.

Further, the rate of profit depends on the organic composition of capital. As we know, the organic composition of capital is the proportion between constant and variable capital. The lower the organic composition of capital, i.e., the larger the relative weight in the capital of its variable part (the value of labour-power), the larger, with the same rate of surplus-value, will the rate of profit be. And, conversely, the higher the organic composition of capital, the lower the rate of profit.

One of the factors which affect the rate of profit is economy in the use of constant capital. Finally, the rapidity of turnover of capital affects the rate of profit. The more rapid the turnover of capital, the higher the annual rate of profit, which represents the relation between the surplusvalue produced, in the year to the total capital advanced. And, conversely, a slowing down in the turnover of capital leads to a lowering of the annual rate of profit.
Formation of the Average Rate of Profit, and Transformation of the Value of Commodities into their Price of Production

Under capitalism the distribution of capital among various branches of production and the development of technique take place in a ferocious competitive struggle.

Competition within a particular branch of production must be distinguished from competition between branches.

Competition within a branch means competition among enterprises in one and the same line of production, all producing commodities of the same kind, each of which tries to secure more advantageous disposal of its commodities and to obtain additional profit. The separate enterprises concerned work in varying conditions and differ one from another in their scale and in their level of technical equipment and organisation of production. Consequently the individual values of the commodities produced in the different enterprises are not the same. But competition between enterprises in one and the same branch of production leads to the price of commodities being determined not by their individual values but by the social value of these commodities. And the magnitude of this social value of the commodities concerned, as has been mentioned, depends on the average conditions of production in the particular branch.

As a result of the fact that the price of commodities is determined by their social value, those enterprises gain in which the, technique of production and the productivity of labour is higher than the average level in the branch concerned and, consequently, where the individual value of the commodities produced is lower than the social value. These enterprises receive an additional profit, or super-profit, which is a form of the extra surplus-value which we have examined earlier (in Chapter VII).

Thus, as a result of competition within a particular branch of production varying rates of profit are formed in different enterprises of the branch in question. Competition between different enterprises of one and the same branch leads to a squeezing-out of the small and medium enterprises by the large-scale ones. In order to hold their ground in the competitive struggle, those capitalists who own backward enterprises endeavour to introduce in them the technical improvements adopted by their competitors who own technically more developed enterprises. As a result a heightening of the organic composition of capital takes place in the branch as a whole, the super-profit which the capitalists who own the technically more advanced enterprises have been receiving now disappears, and a general lowering of the rate of profit takes place. This obliges the capitalists again to introduce technical improvements. Thus, in the process of competition within a particular branch, there takes place the development of technique and the growth of the productive forces.

Competition between branches means competition between the capitalists of different branches of production over the most profitable way of investing capital. The capitals invested in different branches of production have varying organic compositions. Since surplus-value is created only by the labour of wage-workers, in enterprises in those branches of production where a low organic composition of capital prevails a capital of the same size produces a relatively large mass of surplus-value. In enterprises with a higher organic composition of capital, a relatively smaller amount of surplus-value is produced. The competitive struggle between capitalists of different branches leads, however, to the amount of profit on capitals of equal size becoming equalised.

Let us suppose that in society there are three branches of production-leatherworking, textiles and engineering-with capitals of the same size but differing in organic composition. The amount of the capital advanced in each of these branches is 100 units (millions of pounds sterling, say). The capital of the leatherworking branch consists of 70 units of constant capital and go units of variable, that of the textile branch consists of 80 units of constant and 20 of van able, and that of the engineering branch consists of go units of constant and 10 units of variable. Let the rate of surplus-value m all three branches be the same and be 100 per cent. So, then, in the leatherworking branch 30 units of surplus-value will be produced in the textile branch 20 and in the engineering branch 10. The value of the commodities in the first branch will be equal to 130, in the second to 120, in the third to 110, and in all three branches together-360 units.

If the commodities are sold at their values, then in the leatherworking branch the rate of profit will be 30 per cent, in the textile branch 20 per cent and in the engineering branch 10 per cent. Such a distribution of profit will be quite advantageous to the capitalists in the leatherworking branch of production, but disadvantageous to the capitalists in the engineering branch. Under these conditions, the entrepreneurs in the engineering branch will seek more advantageous application for their capitals. This application for their capitals they will find in the leatherworking branch. A flow of capital from the engineering branch to the leatherworking branch will take place. In consequence, the quantities of commodities produced in the leatherworking branch will grow, competition will inevitably become more acute and will oblige the entrepreneurs in this branch to lower the prices of their commodities, which it will lead also to a reduction in the rate of profit. Conversely, in the engineering branch the quantities of commodities produced will fall and the changed relationship between supply and demand will enable the entrepreneurs to raise the process of their commodities, as a result of which the rate of profit will also rise.

The fall in prices in the leatherworking branch and the rise in prices in the engineering branch will continue until the rate of profit in all three branches becomes approximately the same.

This will happen when the commodities produced by all three branches are sold at 120 units (130+120+110)/3. The average profit of each of the branches will then be 20 units. The average profit is an equal profit on capitals of the same, magnitude invested in different branches of production.

And so, competition between branches leads to the differing rates of profit existing in different branches of capitalist production being equalised to a general (or average) rate of profit. This equalisation takes place through a flow of capital (and consequently, also of labour) from Some branches to others.

Through the formation of an average rate of profit the capitalists of some branches (in our example, leatherworking) are deprived of part of the surplus-value created by their workers. On the other hand, the capitalists in other branches (in our example, engineering) realise extra surplus-value. This means that the first sell their commodities at prices below their value, while the second sell them at prices above their value.

The price of a commodity in any of the branches is now composed of the cost of production (100 units) and the average profit (20 units).

The price which equals the cost of production of a commodity plus the average profit is the price of production. In the separate enterprises of a particular branch, as a result of the differences in the conditions of production, there exists different individual prices of production which are determined by the individual costs of production plus the average profit.

But the commodities are realised at an averaged-out, uniform price of production. The process of formation of an average rate of profit and price of production may be depicted in the form of the following table:
Branches of
production Constant
capital Variable
capital Surplus-
value Value of
commodities Averagerate of
profit
(%) Price of
production of
commodities Variation of
price of
production
from value
Leather 70 30 30 130 20 120 -10
working Textile
80.2 0 20 120 20 120 Equal
Engineering 90 10 10 110 20 120 +10
Total 240 60 60 360 20 360

The commodities produced in each of the three branches are sold at 120 units (millions of dollars, say). Yet the value of the commodities in the leatherworking branch is 130 units, in the, textile branch 120 and in the engineering branch 110. In contrast to what happens under simple commodity production, under capitalism commodities are sold not at prices which correspond to their value but at prices which correspond to their prices of production.

The transformation of value into price of production is result of the historical development of capitalist production. Under conditions of simple commodity production the market price of commodities in general correspond to their values. In the first stages of capitalism’s development significant differences were still retained between the rates of profit in different branches of production, since the separate branches were as yet insufficiently interconnected, and craft and other restrictions in existed which hindered the free flow of capital from some branches to others. The process of forming the average rate of profit and transforming value into price of production was brought to completion only with the triumph of capitalist machine industry. With the transformation of value into price of production the basic economic law of capitalism, the law of surplus-value, becomes concrete and finds expression in their form of the average rate of profit.

Bourgeois economists try to refute Marx’s labour theory of value by referring to the fact that in particular branches the prices of production do not coincide with the values of the commodities. In reality, however, the law of value fully retains its force in capitalist conditions, for the price of production is merely a modified form of value.

This is shown by the following circumstances:

First, some entrepreneurs sell their commodities above their value, others below, but the capitalists as a whole, taken together, realise the full amount of the value of their commodities. On the scale of society as a whole the sum total of prices of production is equal to the sum total of the values of all commodities.

Second, the sum total of the profit received by the whole class of capitalists is equal to the sum total of the surplus-value produced by all the unpaid labour of the proletariat. The magnitude of the average rate of profit depends on the magnitude of the surplus-value produced in society.

Third, a reduction in the value of commodities leads to a reduction in their prices of production, an increase in the value of commodities leads to the raising of their prices of production.

Thus, the law of the average rate of profit operates in capitalist society; it means that the different rates of profit which depend on the differences in the organic composition of capital in different branches of production are levelled out, as a result of competition, to a common (average) rate of profit. The law of the average rate of profit, like all the laws of the capitalist mode of production, manifests itself spontaneously through innumerable variations and fluctuations. In the struggle for the most profitable application of capital a ferocious competitive struggle is waged between the capitalists. They endeavour to place their capital in those branches of industry which promise them the largest profits. In the hunt for high profits a flow of capita! from one branch to another takes place, and as a result of this an average rate of profit is established.

Thus, the distribution of labour and means of production between the different branches of capitalist production takes place on the basis of the law of the average rate of profit. This means that in a developed capitalist society the law of value operates as the spontaneous regulator of production, working through the price of production.

The price of production is that average magnitude around which fluctuate, in the last analysis, the market prices of commodities, i.e., the prices at which commodities are actually bought and sold on the market.

The equalisation of the rate of profit and the transformation of value into price of production still further disguise the relationship of exploitation, still further conceal the true source of the enrichment of the capitalists..

“The actual difference of magnitude between profit and surplus value … in the various spheres of production now conceals completely the true nature and origin of profit, not only for the capitalist, who has a special interest in deceiving himself on this score, but also for the labourer. By the transformation of values into prices of production, the basis of the determination of value is itself removed from direct observation." (Marx, Capital, Kerr edition, vol. III, p. 198.)

In reality the formation of an average rate of profit means a redistribution of surplus-value among the capitalists in different branches of production. Part of the surplus-value created in branches with a low organic composition of capital is appropriated by the capitalists in the branches with a high composition of capital. It follows that the workers are exploited not only by those capitalists for whom they work but by the entire class of capitalists as a whole. The entire capitalist class has an interest in raising the degree to which the workers are exploited, since this leads to a rise in the average rate of profit. As Marx showed, the average rate of profit is dependent on the degree to which the whole of labour is exploited by the whole of capital.

The law of the average rate of profit expresses, on the one hand, the contradictions and the competitive struggle among the industrial capitalists over the sharing-out of surplus-value, and on the other hand, the profound antagonism between two mutually hostile classes, the bourgeoisie and the proletariat. It testifies to the fact that in capitalist society the bourgeoisie’ as a class opposes the proletariat as a whole, that a struggle for particular interests of the workers or of particular groups of workers, a struggle against particular capitalists, cannot lead to a radical change in the position of the working class. The working class can free itself from the yoke of capital only by overthrowing the bourgeoisie as a class, only by abolishing the system of capitalist exploitation itself.
Tendency of the Rate of Profit to Fall

As capitalism develops, the organic composition of capital steadily rises. Each separate entrepreneur, more and more replacing workers by machines, strives to cheapen production, extend the market for his commodities and win super-profit for himself. But when the technical attainments of particular enterprises become widespread, a rise in the organic composition of capital takes place in the majority of enterprises, which leads to a fall in the general rate of profit.

A more rapid growth of fixed capital compared with circulating capital acts in the same direction, leading as it does to a slowing down in the turnover of the whole capital.

Each capitalist, in raising the level of technique, endeavours to obtain the largest possible profit, but the result of the activities of all the capitalists directed to achieving this purpose is something which none of them wanted-a lowering of the general rate of profit..

Let us take our previous example. The sum-total of all the capitals, amounting to 300 units, is made up of 240 units of constant and 60 of variable capital. With the rate of surplus-value at 100 per cent, 60 units of surplus-value are produced, and the rate of profit is 20 per cent. Let us suppose that during twenty years the total amount of capital grows from 300 to 500 units. At the same time as a result of the progress of technique, the organic composition of capital grows. Consequently, the 500 units are divided into 425 units of constant and 75 units of variable capital. In this case, given the previous rate of surplus-value, 75 units of surplus-value will be created. The rate of profit will now be 75/500x100=15 per cent. The amount of profit has grown from 60 to 75 units, but the rate of profit has fallen from 20 per cent to 15 per cent.

So, then, a rise in the organic composition of capital leads to a lowering of the average rate of profit. There are a number of factors, however, which counteract the lowering of the rate of profit.

In the first place, the exploitation of the working class grows. The development of the productive forces of capitalism, which expresses itself in the increasing organic composition of capital, leads at the same time to a growth in the rate of surplus-value. Owing to this, the lowering of the rate of profit takes place more slowly than it would have done had the rate of surplus-value remained the same. Secondly, technical progress, raising the organic composition of capital, gives rise to unemployment, which presses upon the labour market. This enables the employers to reduce wages fixing them well below the value of labour-power.

Thirdly, as the productivity of labour grows, there is a fall in the value of the means of production-machinery, equipment, raw material, etc. This slows down the growth in the organic composition of capital, and, consequently, counteracts the lowering of the rate of profit..

Let us suppose that an employer compels his workers, who formerly were operating five looms, to operate twenty. As a result of the growth in the productivity of labour in the manufacture of looms, however, the value of looms has fallen by half. Consequently, twenty looms are now worth not four times as much as five but only twice as much. Therefore the share of constant capital per worker grows not fourfold but only twofold.

Fourthly, the lowering of the average rate of profit is counteracted by economy in constant capital effected by the capitalist at the expense of the health and lives of his workers. In order to enlarge their profits employers compel their workers to do their work in workshops which are too small and without adequate ventilation, and they economise on the devices which are needed for safety. In consequence of this niggardliness on the part of the capitalists, the workers’ health is undermined, an enormous number of accidents happen, and the death rate rises among the working population.

Fifthly, the fall in the rate of profit is held up because of the nonequivalent exchange which exists in the sphere of foreign trade, when the entrepreneurs of advanced capitalist countries, through selling their commodities in colonial countries, obtain super-profit.

All these counteracting factors do not abolish but merely weaken the lowering of the rate of profit and convert it into a tendency. Thus, the raising of the organic composition of capital has as its inevitable consequence the law of the tendency of the general (or average) rate of profit to fall.

The fall in the rate of profit does not mean a reduction in the amount of profit, i.e., in the total volume of surplus-value produced by the working class. On the contrary, the amount of profit grows both in connection with the rise in the rate of surplus-value and as a result of the growth in the number of workers exploited by capital. For example, in the U.S.A. the total of industrial profit, calculated from the official data of the Census of Industry, amounted in 1859 to 316 million dollars, in 1869 to 516 million, in 1879 to 660 million, in 1889 to 1,513 million, and in 1899 to 2,245 million.

The capitalists try by intensifying to the utmost the exploitation of the workers to weaken the tendency of the rate of profit to fall. This leads to the contradictions between proletariat and bourgeoisie becoming more acute.

The law of the tendency of the rate of profit to fall intensifies the struggle within the bourgeoisie itself over the distribution of the total mass of profit.

In their drive for higher profits the capitalists invest their capital in backward countries, where working hands are cheaper and the organic composition of capital is lower than in countries with highly-developed industry: and they begin to exploit the peoples of these countries intensively. This leads to a sharpening of the contradictions between the developed capitalist countries and the backward ones, between metropolitan countries and colonies.

Further, in order to keep prices at a high level, entrepreneurs join together in associations of various kinds. By this means they manage to secure high profits.

Finally, striving to make up for the fall in the rate of profit by increasing its amount, the capitalists extend the scale of production far beyond the limits of demand effective in terms of money. In this connection, the contradictions caused by the tendency of the rate of profit to fall make themselves felt especially sharply during crises.

The law of the tendency of the rate of profit to fall is one of the clearest indications of the historical limitations of the capitalist mode of production. In sharpening the contradictions of capitalism, this law shows vividly that at a certain stage the bourgeois system becomes an obstacle to the further development of the productive forces.
BRIEF CONCLUSIONS

(1) Profit is surplus-value taken in comparison with the-total capital invested in production and appearing from outside as though produced by this capital. The rate of profit means the relation of the amount of surplus-value produced to the total capital, expressed as a percentage.

(2) Competition within a branch of production leads to the prices of identical commodities being determined not by the individual but by the social value of these commodities. Competition between branches leads to a flow of capital from one branch to another, to the formation of an average rate of profit throughout the field of capitalist production. On the basis of the law of the average rate of profit there takes place a distribution of labour and means of production among the various branches of capitalist economy.

(3) As a result of the equalisation of the rate of profit commodities are sold not at their values but as their prices of production. The price of production is the price which equals the cost of producing the commodity plus the average profit. The price of production is a modified form of the value. The sum-total of the prices of production is equal to the sum-total of the values of all commodities; with a change in the value o commodities their price of production also changes.

(4) As capitalism develops, in proportion to the growth in the organic composition of capital the average rate of profit shows a tendency to fall.

At the same time the amount of profit steadily grows. The law of the tendency of the average rate of profit to fall leads to the contradictions of capitalism becoming acute.

XII. Merchant Capital and Merchants’ Profit

Merchants’ Profit and its Source

Merchant and money-lenders’ capital preceded industrial capital in history. Under the capitalist mode of production these forms of capital lose their previous independent role; their functions are reduced to serving industrial capital. Consequently, under capitalism, merchant capital and interest-bearing capital are essentially different from what they were in their pre-capitalist forms.

Industrial capital, as already stated, assumes in the course of its rotation three successive forms: money capital, industrial capital and commodity capital, which have different functions. These functional forms of industrial capital come to stand apart from each other at a certain level of its development. From industrial capital employed in production there is separated off merchant capital, in the shape of the capital of the merchant, and loan capital in the shape of bank capital. Within the capitalist class three groups are formed, all sharing in the appropriation of surplus-value: manufacturers, merchants and bankers.

Merchant capital is capital employed in the sphere of commodity circulation. In this sphere no surplus-value is created. Whence, then, does the merchant’s profit arise? If the capitalist manufacturer himself were to undertake the realisation of his commodities, he would have to spend part of his capital on equipping commercial establishments, hiring salesmen, and other expenses connected with trade. In order to do this he would have to increase the amount of capital advanced or else, with the same amount of capital advanced, to reduce the scale of production.

And in either case his profit would fall. The manufacturer prefers to sell his commodities to a middleman-a merchant capitalist, who as his special task undertakes the selling of goods, the forwarding of them to the consumer. This specialisation of merchant capital in the function of commodity circulation enables the time and expense connected with circulation to be reduced. Merchant capital, in serving the process of realisation of the commodities of many industrial capitalists, thereby reduces the part of social capital which is diverted from production to the circulation process. Thanks to having transferred the task of realising his commodities to the merchant, the industrial capitalist speeds up the turnover of his capital and this leads to an increase in his profits. This enables the manufacturer in his own interests to surrender to the merchant a certain share of the surplus-value, which constitutes the merchant capitalist’s profit. Merchants’ profit is a part of the surplusvalue, which the manufacturer surrenders to the merchant in return for realising his commodities.

The realisation of commodities is effected by merchant capital by means of exploiting commercial employees. The labour of these wageworkers who are engaged in realising commodities, i.e., in transforming commodities into money and money into commodities, creates neither value nor surplus-value, but it enables the merchant capitalist to appropriate part of the surplus-value created in production.".

“Just as the unpaid labour of the labourer of the productive capital creates surplus-value for it in a direct way, sot:, unpaid labour of the commercial wage-workers secures, share of this surplus-value for the merchant’s capital." (Marx, Capital, Kerr edition, vol. III, p.346.)

The working day of commercial employees, like that of workers engaged in production, breaks down into two parts: during the necessary time they effect the realisation of that part of the surplus-value created in the sphere of production which replaces the capitalists’ outlay on the hiring of their labour-power, and during the surplus time they work gratis for the capitalists, enabling them to appropriate merchants’ profit.

Consequently the workers in the sphere of trade are subjected to exploitation on the part of the merchant capitalists just as the workers who produce commodities are subjected to exploitation by the manufacturers.

If he is to realise a certain mass of commodities, the merchant must advance for a certain period a capital of appropriate amount. He tries to obtain as large profits as possible on this, capital. If the rate of merchants’ profit turns out to be less than the average rate of profit, the business of merchant becomes unprofitable, and merchants transfer their capital to industry, agriculture or some other branch of the economy.

Conversely, a high rate of merchants’ profit attracts industrial capital into commerce. Competition between the capitalists leads to the level of merchants’ profit being determined by the average rate of profit, the average profit being formed in relation to all capital, including that which operates in the sphere of circulation.

Thus, not only the capital of industrial capitalists but also merchant capital takes part in the process of evening-out the rate of profit, as a result of which both industrial and merchant capitalists receive the average rate of profit in proportion to the amount of capital expended by them. It follows that the industrial capitalists do not realise all the profit created in industry but only that part of it which constitutes the average profit on the capital which they have invested. The merchant capitalists sell commodities at their price of production, which includes the average profit both of the industrialist and of the merchant. Because of this it is possible for them to realise the average profit on the capital they have invested out of the difference between their buying and selling prices..

In the form of merchants’ profit the true source of the increase of capital is still more closely hidden than it is in the form of industrial profit. The merchant’s capital plays no part in production. The formula for the movement of merchant capital is: M-C-M. Here the stage of productive capital is missing and the link with production outwardly seems broken. A misleading appearance is created that profit is arising from trade itself by way of additions to the price and the selling of commodities above their price of production. What in fact happens, as has been shown, is the opposite: the manufacturer sells the commodity to the merchant below the price of production, surrendering to him part of his profit.

Merchant capital not only takes part in realising the surplus-value created in production, it also subjects the working people to additional exploitation as consumers. Striving to obtain additional profit, the merchant capitalists inflate prices by all means available, extensively practise the giving of short weight and short measure to customers, and sell poor-quality and adulterated goods.

One of the sources of merchants’ profit is the exploitation of petty commodity producers by merchant capital. Merchant capitalists compel peasants and craftsmen to sell them the products of their labours at low prices and at the same time the latter buy from the merchant capitalists tools, equipment, raw material, etc., at high prices. The share taken by commercial middlemen of the retail price of agricultural products in the, U.S.A. rose between 1913 and 1934 from 54 per cent to 63 per cent.

All this leads to enhanced impoverishment of the working people and still further sharpens the contradictions of capitalism.
Costs of Circulation

The process of capitalist circulation of commodities demands, a certain outlay for expenses. These expenses, connected with the maintenance of the sphere of circulation, are the costs of circulation.

Two kinds of capitalist costs incurred in the sphere of trade must be distinguished one from the other: first, net costs of circulation which are directly connected with the processes of purchase and sale of goods and derive from the peculiarities of the capitalist system; and, second, costs arising from the extension of the production-process into the sphere of circulation.

The predominant and continually growing share of the costs of circulation in capitalist trade is taken by the net costs. To the net costs of circulation belong the expenses connected with the transformation of commodities into money and money into commodities. To this category belong the expenses arising from competition and speculation, from advertising, the greater part of the expenditure on the wages of commercial employees, on the keeping of accounts, correspondence, the upkeep of commercial offices, etc. Net costs of circulation, as Marx showed do not add one jot of value to the commodity. They constitute a direct deduction from the total sum of values produced in society, and are covered by the capitalists from the total mass of surplus-value produced by the labour of the working class. The increase in the net costs of circulation testifies to the growth of waste under capitalism." .

In the U.S.A. recorded expenses on advertisement alone amounted in 1934 to 1.6 milliard dollars, in 1940 to 2.1 milliard and in 1953 to 7.8 milliard..

With the development of capitalism and the growing difficulties of realising commodities, a colossal trading apparatus with manifold links is built up. Before they reach the hands of the consumer, commodities pass through the hands of a whole army of merchants, speculators, retailers and agents.

To the category of costs connected with the extension of the production process into the sphere of circulation belong expenses which are socially necessary and do not depend on the peculiarities of the capitalist system-on the finishing, transport and packing of goods. Every product is available to the consumer only when it has been delivered to him. The costs of finishing, transport and packing of goods correspondingly increase the cost of production of commodities. The labour which the workers expend in this work transfers to the commodities the value of the means of production expended and adds new value to the value of the commodity.

The anarchy of capitalist production and crises, the competitive struggle and speculation, bring about the piling up of extraordinary stocks of commodities and lengthen and distort their channels of movement, which leads to huge unproductive expenditure being incurred. In the overwhelming majority of cases capitalist advertisement is connected to a greater or less extent with swindling the customer and gives rise to superfluous and expensive packing of goods. This means that an ever larger part of the expenses for transport, storage and packing of commodities are transformed into net costs caused by capitalist competition and anarchy of production. The rise in the level of the costs of circulation is one of the indices of intensified parasitism in bourgeois society. The cost of capitalist trade weigh heavily upon the working people as consumers. .

In the U.S.A. costs of circulation amounted in 1929 to 31 per cent and in 1935 to 32.8 per cent of the total amount of retail trade. In the capitalist countries of Europe the costs of circulation amount to approximately a third of the total retail turnover.
Forms of Capitalist Trade. Commodity Exchanges

As capitalist production and circulation develop, the forms of trade, wholesale and retail, also develop. Wholesale trade is trade between manufacturers and trading concerns, while retail trade is the sale of commodities directly to the population.

In trade, as in industry, concentration and centralisation of capital goes on. Small and medium capitalists are squeezed out by large-scale ones both in wholesale and in retail trade. In retail trade the concentration of capital takes place principally in the form of the settingup of large stores, both universal a specialised. Universal stores carry on trade in all kinds of goods, specialised shops trade only in one kind of goods, e.g., footwear, or clothing.

The production of identical commodities permits merchants to carry on wholesale trade by means of samples. Mass homogeneous goods such as cotton, flax-fibre, metals b ferrous and non-ferrous, rubber, grain, sugar, coffee, etc., are bought and sold in accordance with fixed standards and samples on the commodity exchanges.

A commodity exchange is a special kind of market, where trade in uniform commodities in bulk is carried on and the supply of and demand for these commodities is concentrated on the scale of entire countriesoften even on the scale of the capitalist world market.

The commodities which are the subject of the deals made between capitalists on the exchanges do not pass immediately from hand to hand. The deals are usually made for completion at the end of a period: the seller undertakes to supply the buyer with a certain quantity of the commodity at a stated time. For instance, deals are concluded in spring for supplying cotton from the next harvest, when this cotton has not yet been sown. In concluding these exchange deals the seller reckons that the price of the commodity in question will have fallen by the time stated, so that he will benefit by the difference in price; the buyer reckons that prices will rise. Often the sellers on the exchange do not possess the goods they sell and the buyers do not want the goods they buy. Thus commodity exchanges are places where speculative trade is carried on. The speculators buy and sell the ownership of goods with which they have not the slightest connection. Speculation is inseparably linked with the whole structure of capitalist trade, since this trade has for its aim not the satisfaction of society’s wants but the extraction of profit. It is the largescale capitalists, mostly, who make big money in speculative trade. It leads to the ruin of a considerable section of the small and medium entrepreneurs.

In bourgeois countries trade is often conducted on credit or on the instalment plan. This type of trade frequently lead the ordinary consumer being obliged to pay his debts with his goods and chattels, being unable to settle with his creditors in due time. Trade on a credit basis is often used by the capitalists as a means of disposing of inferior goods which are otherwise unsaleable.
Foreign Trade

As mentioned above, the transition to capitalism was connected with the creation of a world market. Lenin said that capitalism resulted from “widely developed commodity circulation which goes beyond the boundaries of the State. For this reason one cannot imagine a capitalist nation without foreign trade; and there is no such nation." (Lenin, “Development of Capitalism in Russia", Works, Russian edition, vol. III, p.43.)

In the course of the development of commodity circulation, going beyond the limits of national markets, capitalist foreign trade is extended.

The extension of world trade in itself expresses the development of the international division of labour, connected with the growth of the productive forces. For the capitalists, however, foreign trade serves as a means of increasing profits. In their hunt for profit the capitalists are constantly seeking new markets for their goods and sources of raw material. The limitations of the home market resulting from the impoverishment of the masses and the seizure of internal sources of raw material by large-scale capitalists intensifies their striving to establish supremacy in foreign markets..

Foreign trade was really extensively developed only in the capitalist epoch. During one hundred years, from 1800 to 1900, the turnover of world trade grew more than twelve-and-a-half-fold, from 1.5 milliard dollars to 18.9 milliard dollars. During the following three decades it grew more than three-and-a-half-fold and in 1929 attained the figure of 68.6 milliard dollars.

Foreign trade is a source of additional profit for the capitalists of the more developed capitalist countries, since manufactured articles are sold in backward countries at relatively higher prices, while raw material can be purchased there at much lower prices. Foreign trade serves as One of the means of economic enslavement of the backward countries by the developed bourgeois countries, and of the extension of the spheres of influence of the capitalist powers..

Thus, for example, the English East India Company plundered India for more than 250 years (1600-1858). As a result of the rapacious exploitation of the local inhabitants by the East India Company many provinces of India were transformed into wildernesses; the fields were not cultivated, the land became overgrown with scrub and the population died off.

Foreign trade is made up of export, i.e., the sending out of commodities, and import, i.e., the bringing in of commodities. The relationship between the total of the prices of the commodities exported by a particular country and the total of the prices of the commodities imported by it during a certain period, e.g., a year, constitutes the balance of trade. If the export side exceeds the import side, the balance of trade is active, while if the opposite is the case it is passive..

A country which has a passive balance of trade must cover its deficit by drawing upon such sources as stocks of gold, income from transporting the products of other countries, income from capital investments in other countries, and finally, by means of foreign, loans..

The trade balance does not show all the forms of economic: relations which exist between countries. A fuller expression of these relations is given by the balance of payments. The balance of payments is the relationship between the total of all payments received by a particular country from other countries and the total of all payments which this country makes to other countries.

The nature of the economic connections between countries also determines the foreign-trade policy of capitalist States. In the epoch of pre-monopoly capitalism two main types of trade policy took shape: the policy of free trade and the policy of protecting native industry (protectionism), which was carried out mainly by introducing high customs dues on foreign goods.
BRIEF CONCLUSIONS

(1) Merchant capital serves the circulation of industrial capital. Merchants’ profit is part of surplus-value, which their manufacturer yields to the merchant.

(2) The exploitation by merchant capital of its wage-workers enables, it to appropriate part of the surplus-value created in production. Merchant capital exploits the small commodity producers through nonequivalent exchange. The workers and other sections of the working people are exploited by merchant capital as purchasers of consumer goods.

(3) The outlay connected with maintaining the sphere of circulation constitutes the costs of circulation. The costs of circulation are made up of net costs, directly connected with the buying and selling of commodities, and costs which arise from the continuation of the production-process into the sphere of circulation. As capitalist trade develops, unproductive expenditure in the sphere of circulation grows.

(4) Foreign trade arises from an international division of labour. Under capitalism it serves as one of the methods of economic enslavement of industrially less developed countries by more developed industrial capitalist powers.

XIII. Loan Capital and Loan Interest. Circulation of Money