Capital, Volume III
Chapter 51. Distribution Relations and Production Relations
The new value added by the annual newly added labour — and thus also that portion of the annual product in which this value is represented and which may be drawn out of the total output and separated from it — is thus split into three parts, which assume three different forms of revenue, into forms which express one portion of this value as belonging or falling to the share of the owner of labour-power, another portion to the owner of capital, and a third portion to the owner of landed property. These, then, are relations, or forms of distribution, for they express the relations under which the newly produced total value is distributed among the owners of the various production factors.
From the common viewpoint these distribution relations appear as natural relations, as relations arising directly from the nature of all social production, from the laws of human production in general. It cannot, indeed, be denied that pre-capitalist societies disclose other modes of distribution, but the latter are interpreted as undeveloped, unperfected and disguised, not reduced to their purest expression and their highest form and differently shaded modes of the natural distribution relations.
The only correct aspect of this conception is: Assuming some form of social production to exist (e.g., primitive Indian communities, or the more ingeniously developed communism of the Peruvians), a distinction can always be made between that portion of labour whose product is directly consumed individually by the producers and their families and — aside from the part which is productively consumed — that portion of labour which is invariably surplus-labour, whose product serves constantly to satisfy the general social needs no matter how this surplus-product may be divided, and no matter who may function as representative of these social needs. Thus, the identity of the various modes of distribution amounts merely to this: they are identical if we abstract from their differences and specific forms and keep in mind only their unity as distinct from their dissimilarity.
A more advanced, more critical mind, however, admits the historically developed character of distribution relations,[56a] but nevertheless clings all the more tenaciously to the unchanging character of production relations themselves, arising from human nature and thus independent of all historical development.
On the other hand, scientific analysis of the capitalist mode of production demonstrates the contrary, that it is a mode of production of a special kind, with specific historical features; that, like any other specific mode of production, it presupposes a given level of the social productive forces and their forms of development as its historical precondition: a precondition which is itself the historical result and product of a preceding process, and from which the new mode of production proceeds as its given basis; that the production relations corresponding to this specific, historically determined mode of production — relations which human beings enter into during the process of social life, in the creation of their social life — possess a specific, historical and transitory character; and, finally, that the distribution relations essentially coincident with these production relations are their opposite side, so that both share the same historically transitory character.
In the study of distribution relations, the initial point of departure is the alleged fact that the annual product is apportioned among wages, profit and rent. But if so expressed, it is a misstatement. The product is apportioned on one side to capital, on the other to revenue. One of these revenues, wages, never itself assumes the form of revenue, revenue of the labourer, until after it has first confronted this labourer in the form of capital. The confrontation of produced conditions of labour and of the products of labour generally, as capital, with the direct producers implies from the outset a definite social character of the material conditions of labour in relation to the labourers, and thereby a definite relationship into which they enter with the owners of the means of production and among themselves during production itself. The transformation of these conditions of labour into capital implies in turn the expropriation of the direct producers from the land, and thus a definite form of landed property.
If one portion of the product were not transformed into capital, the other would not assume the forms of wages, profit and rent.
On the other hand, if the capitalist mode of production presupposes this definite social form of the conditions of production, so does it reproduce it continually. It produces not merely the material products, but reproduces continually the production relations in which the former are produced, and thereby also the corresponding distribution relations.
It may be said, of course, that capital itself (and landed property which it includes as its antithesis) already presupposes a distribution: the expropriation of the labourer from the conditions of labour, the concentration of these conditions in the hands of a minority of individuals, the exclusive ownership of land by other individuals, in short, all the relations which have been described in the part dealing with primitive accumulation (Buch I, Kap. XXIV) [English edition: Part VIII — Ed]. But this distribution differs altogether from what is understood by distribution relations when the latter are endowed with a historical character in contradistinction to production relations. What is meant thereby are the various titles to that portion of the product which goes into individual consumption. The aforementioned distribution relations, on the contrary, are the basis of special social functions performed within the production relations by certain of their agents, as opposed to the direct producers. They imbue the conditions of production themselves and their representatives with a specific social quality. They determine the entire character and the entire movement of production.
Capitalist production is distinguished from the outset by two characteristic features.
First. It produces its products as commodities. The fact that it produces commodities does not differentiate it from other modes of production; but rather the fact that being a commodity is the dominant and determining characteristic of its products. This implies, first and foremost, that the labourer himself comes forward merely as a seller of commodities, and thus as a free wage-labourer, so that labour appears in general as wage-labour. In view of what has already been said, it is superfluous to demonstrate anew that the relation between capital and wage-labour determines the entire character of the mode of production. The principal agents of this mode of production itself, the capitalist and the wage-labourer, are as such merely embodiments, personifications of capital and wage-labour; definite social characteristics stamped upon individuals by the process of social production; the products of these definite social production relations.
The characteristic 1) of the product as a commodity, and 2) of the commodity as a product of capital, already implies all circulation relations, i.e., a definite social process through which the products must pass and in which they assume definite social characteristics; it likewise implies definite relations of the production agents, by which the value-expansion of their product and its reconversion, either into means of subsistence or into means of production, are determined. But even apart from this, the entire determination of value and the regulation of the total production by value results from the above two characteristics of the product as a commodity, or of the commodity as a capitalistically produced commodity. In this entirely specific form of value, labour prevails on the one hand solely as social labour; on the other hand, the distribution of this social labour and the mutual supplementing and interchanging of its products, the subordination under, and introduction into, the social mechanism, are left to the accidental and mutually nullifying motives of individual capitalists. Since these latter confront one another only as commodity-owners, and everyone seeks to sell his commodity as dearly as possible (apparently even guided in the regulation of production itself solely by his own free will), the inner law enforces itself only through their competition, their mutual pressure upon each other, whereby the deviations are mutually cancelled. Only as an inner law, vis-à-vis the individual agents, as a blind law of Nature, does the law of value exert its influence here and maintain the social equilibrium of production amidst its accidental fluctuations.
Furthermore, already implicit in the commodity, and even more so in the commodity as a product of capital, is the materialisation of the social features of production and the personification of the material foundations of production, which characterise the entire capitalist mode of production.
The second distinctive feature of the capitalist mode of production is the production of surplus-value as the direct aim and determining motive of production. Capital produces essentially capital, and does so only to the extent that it produces surplus-value. We have seen in our discussion of relative surplus-value, and further in considering the transformation of surplus-value into profit, how a mode of production peculiar to the capitalist period is founded hereon — a special form of development of the social productive powers of labour, but confronting the labourer as powers of capital rendered independent, and standing in direct opposition therefore to the labourer’s own development. Production for value and surplus-value implies, as has been shown in the course of our analysis, the constantly operating tendency to reduce the labour-time necessary for the production of a commodity, i.e., its value, below the actually prevailing social average. The pressure to reduce cost-price to its minimum becomes the strongest lever for raising the social productiveness of labour, which, however, appears here only as a continual increase in the productiveness of capital.
The authority assumed by the capitalist as the personification of capital in the direct process of production, the social function performed by him in his capacity as manager and ruler of production, is essentially different from the authority exercised on the basis of production by means of slaves, serfs, etc.
Whereas, on the basis of capitalist production, the mass of direct producers is confronted by the social character of their production in the form of strictly regulating authority and a social mechanism of the labour-process organised as a complete hierarchy — this authority reaching its bearers, however, only as the personification of the conditions of labour in contrast to labour, and not as political or theocratic rulers as under earlier modes of production — among the bearers of this authority, the capitalists themselves, who confront one another only as commodity-owners, there reigns complete anarchy within which the social interrelations of production assert themselves only as an overwhelming natural law in relation to individual free will.
Only because labour pre-exists in the form of wage-labour, and the means of production in the form of capital — i.e., solely because of this specific social form of these essential production factors — does a part of the value (product) appear as surplus-value and this surplus-value as profit (rent), as the gain of the capitalist, as additional available wealth belonging to him. But only because this surplus-value thus appears as his profit do the additional means of production, which are intended for the expansion of reproduction, and which constitute a part of this profit, present themselves as new additional capital, and the expansion of the process of reproduction in general as a process of capitalist accumulation.
Although the form of labour as wage-labour is decisive for the form of the entire process and the specific mode of production itself, it is not wage-labour which determines value. In the determination of value, it is a question of social labour-time in general, the quantity of labour which society generally has at its disposal, and whose relative absorption by the various products determines, as it were, their respective social importance. The definite form in which the social labour-time prevails as decisive in the determination of the value of commodities is of course connected with the form of labour as wage-labour and with the corresponding form of the means of production as capital, in so far as solely on this basis does commodity-production become the general form of production.
Let us moreover consider the so-called distribution relations themselves. The wage presupposes wage-labour, and profit — capital. These definite forms of distribution thus presuppose definite social characteristics of production conditions, and definite social relations of production agents. The specific distribution relations are thus merely the expression of the specific historical production relations.
And now let us consider profit. This specific form of surplus-value is the precondition for the fact that the new creation of means of production takes place in the form of capitalist production; thus, a relation dominating reproduction, although it seems to the individual capitalist as if he could in reality consume his entire profit as revenue. However, he thereby meets barriers even in the form of insurance and reserve funds laws of competition, etc., which hamper him and prove to him in practice that profit is not a mere distribution category of the individually consumable product. The entire process of capitalist production is furthermore regulated by the prices of the products. But the regulating prices of production are themselves in turn regulated by the equalisation of the rate of profit and its corresponding distribution of capital among the various social spheres of production. Profit, then, appears here as the main factor, not of the distribution of products, but of their production itself, as a factor in the distribution of capitals and labour itself among the various spheres of production. The division of profit into profit of enterprise and interest appears as the distribution of the same revenue. But it arises, to begin with, from the development of capital as a self-expanding value, a creator of surplus-value, i.e., from this specific social form of the prevailing process of production. It evolves credit and credit institutions out of itself, and thereby the form of production. As interest, etc., the ostensible distribution forms enter into the price as determining production factors.
Ground-rent might seem to be a mere form of distribution, because landed property as such does not perform any, or at least any normal, function in the process of production itself. But the circumstance that 1) rent is limited to the excess above the average profit, and that 2) the landlord is reduced from the manager and master of the process of production and of the entire process of social life to the position of mere lessor of land, usurer in land and mere collector of rent, is a specific historical result of the capitalist mode of production. The fact that the earth received the form of landed property is a historical precondition for this. The fact that landed property assumes forms which permit the capitalist mode of operation in agriculture is a product of the specific character of this mode of production. The income of the landlord may be called rent, even under other forms of society. But it differs essentially from rent as it appears in this mode of production.
The so-called distribution relations, then, correspond to and arise from historically determined specific social forms of the process of production and mutual relations entered into by men in the reproduction process of human life. The historical character of these distribution relations is the historical character of production relations, of which they express merely one aspect. Capitalist distribution differs from those forms of distribution which arise from other modes of production, and every form of distribution disappears with the specific form of production from which it is descended and to which it corresponds.
The view which regards only distribution relations as historical, but not production relations, is, on the one hand, solely the view of the initial, but still handicapped, criticism of bourgeois economy. On the other hand, it rests on the confusion and identification of the process of social production with the simple labour-process, such as might even be performed by an abnormally isolated human being without any social assistance. To the extent that the labour-process is solely a process between man and Nature, its simple elements remain common to all social forms of development. But each specific historical form of this process further develops its material foundations and social forms. Whenever a certain stage of maturity has been reached, the specific historical form is discarded and makes way for a higher one. The moment of arrival of such a crisis is disclosed by the depth and breadth attained by the contradictions and antagonisms between the distribution relations, and thus the specific historical form of their corresponding production relations, on the one hand, and the productive forces, the production powers and the development of their agencies, on the other hand. A conflict then ensues between the material development of production and its social form.[57]
Chapter 52. Classes
The owners merely of labour-power, owners of capital, and land-owners, whose respective sources of income are wages, profit and ground-rent, in other words, wage-labourers, capitalists and land-owners, constitute then three big classes of modern society based upon the capitalist mode of production.
In England, modern society is indisputably most highly and classically developed in economic structure. Nevertheless, even here the stratification of classes does not appear in its pure form. Middle and intermediate strata even here obliterate lines of demarcation everywhere (although incomparably less in rural districts than in the cities). However, this is immaterial for our analysis. We have seen that the continual tendency and law of development of the capitalist mode of production is more and more to divorce the means of production from labour, and more and more to concentrate the scattered means of production into large groups, thereby transforming labour into wage-labour and the means of production into capital. And to this tendency, on the other hand, corresponds the independent separation of landed property from capital and labour,[58] or the transformation of all landed property into the form of landed property corresponding to the capitalist mode of production.
The first question to be answered is this: What constitutes a class? — and the reply to this follows naturally from the reply to another question, namely: What makes wage-labourers, capitalists and landlords constitute the three great social classes?
At first glance — the identity of revenues and sources of revenue. There are three great social groups whose members, the individuals forming them, live on wages, profit and ground-rent respectively, on the realisation of their labour-power, their capital, and their landed property.
However, from this standpoint, physicians and officials, e.g., would also constitute two classes, for they belong to two distinct social groups, the members of each of these groups receiving their revenue from one and the same source. The same would also be true of the infinite fragmentation of interest and rank into which the division of social labour splits labourers as well as capitalists and landlords-the latter, e.g., into owners of vineyards, farm owners, owners of forests, mine owners and owners of fisheries.
[Here the manuscript breaks off.]
Supplement by Frederick Engels
Introduction
The third book of Capital is receiving many and various interpretations ever since it has been subject to public judgement. It was not to be otherwise expected. In publishing it, what I was chiefly concerned with was to produce as authentic a text as possible, to demonstrate the new results obtained by Marx in Marx’s own words as far as possible, to intervene myself only where absolutely unavoidable, and even then to leave the reader in no doubt as to who was talking to him. This has been deprecated. It has been said that I should have converted the material available to me into a systematically written book, en faire un livre, as the French say; in other words, sacrifice the authenticity of the text to the reader’s convenience. But this was not how I conceived my task. I lacked all justification for such a revision, a man like Marx has the right to be heard himself, to pass on his scientific discoveries to posterity in the full genuineness of his own presentation. Moreover, I had no desire thus to infringe — as it must seem to me — upon the legacy of so pre-eminent a man; it would have meant to me a breach of faith. And third, it would have been quite useless. For the people who cannot or do not want to read, who, even in Volume I, took more trouble to understand it wrongly than was necessary to understand it correctly — for such people it is altogether useless to put oneself out in any way. But for those who are interested in a real understanding, the original text itself was precisely the most important thing; for them my recasting would have had at most the value of a commentary, and, what is more, a commentary on something unpublished and inaccessible. The original text would have had to be referred to at the first controversy, and at the second and third its publication in extenso would have become quite unavoidable.
Such controversies are a matter of course in a work that contains so much that is new, and in a hastily sketched and partly incomplete first draft to boot. And here my intervention, of course, can be of use: to eliminate difficulties in understanding, to bring more to the fore important aspects whose significance is not strikingly enough evident in the text, and to make some important additions to the text written in 1865 to fit the state of affairs in 1895. Indeed, there are already two points which seem to me to require a brief discussion.
Law of Value and Rate of Profit
It was to be expected that the solution of the apparent contradiction between these two factors would lead to debates just as much after, as before, the publication of Marx's text. Some were prepared for a complete miracle, and find themselves disappointed because they see a simple, rational, prosaically-sober solution of the contradiction, instead of the hocus-pocus they had expected. Most joyfully disappointed, of course, is the well-known, illustrious Loria. He has at last found the Archimedian fulcrum from which even a gnome of his calibre can lift the solidly built, gigantic Marxian structure into the air and explode it. What! he declaims indignantly. Is that supposed to be a solution? That is pure mystification! When economists speak of value, they mean value that is actually established in exchange.
"No economist with any trace of sense has ever concerned himself or will ever want to concern himself with a value which commodities do not sell for and never can sell for (ne possono vendersi mai).... In asserting that the value for which commodities never sell is proportional to the labor they contain, what does Marx do except repeat in an inverted form the thesis of the orthodox economists, that the value for which commodities sell is not proportional to the labor expended on them? ... Matters are not helped by Marx's saying that despite the divergency of individual prices from individual values, the total price of all commodities always coincides with their total value, or the amount of labor contained in the totality of the commodities. For inasmuch as value is nothing more than the exchange ratio between one commodity and another, the very concept of a total value is an absurdity, nonsense ... a contradiction in abjecto...."
At the very beginning of the book, he argues, Marx says that exchange can equate two commodities only by virtue of a similar and equally large element contained in them — namely, the equal amount of labor. And now he most solemnly repudiates himself by asserting that commodities exchange with one another in a totally different ratio than that of the amount of labor contained in them.
"Was there ever such an utter reductio ad absurdum, such complete theoretical bankruptcy? Was ever scientific suicide committed with greater pomp and more solemnity!" (Nouva Antologia, Feb.1, 1895, pp.478-79.)
We see: our Loria is more than happy. Wasn't he right in treating Marx as one of his own, as an ordinary charlatan? There you see it — Marx sneers at his public just like Loria; he lives on mystification just like the most insignificant Italian professor of economics. But, whereas Dulcamara can afford that because he knows his trade, the clumsy Northerner, Marx, commits nothing but ineptitudes, writes nonsense and absurdities, so that there is nothing left finally for him but solemn suicide.
Let us save for later the statement that commodities have never been sold, nor can ever be sold, at the values determined by labor. Let us deal here merely with Mr. Loria's assurance that
"value is nothing more than the exchange ratio between one commodity and another," and that therefore "the very concept of a total value is an absurdity, nonsense..."
The ratio in which two commodities are exchanged for each other, their value, is therefore something purely accidental, stuck on to the commodities from the outside, which can be one thing today and something else tomorrow. Whether a metric hundredweight of wheat is exchanged for a gramme or a kilogramme of gold does not in the least depend upon conditions inherent in that wheat or gold. For otherwise these conditions would also have to assert themselves in the exchange, dominate the latter on the whole, and also have an independent existence apart from exchange, so that one could speak of a total value of commodities. That is nonsense, says the illustrious Loria. No matter in what ratio two commodities may be exchanged for each other, that is their value — and that's all there is to it. Hence, value is identical with price, and every commodity has as many values as the prices it can get. And price is determined by supply and demand; and any one asking any more questions is a fool to expect an answer.
But there is a little hitch to the matter. In the normal state, supply and demand balance. Therefore, let us divide all the commodities in the world into two halves, the supply group and the equally large demand group. Let us assume that each represents a price of 1,000 billion marks, francs, pounds, or what you will. According to elementary arithmetic, that makes a price of 2,000 billions. Nonsense, absurd, says Mr. Loria. The two groups together may represent a price of 2,000 billions. But it is otherwise with value. If we say price: 1,000 + 1,000 = 2,000. But if we say value: 1,000 + 1,000 = 0. At least in this case, where the totality of commodities is involved. For here the commodities of each of the two groups are worth 1,000 billion only because each of the two can and will give this sum for the commodities of the other. But if we unite the totality of the commodities of the two in the hands of a third person, the first has no value in his hand any longer, nor the second, and the third certainly not — in the end, no one has anything. And again we marvel at the superiority with which our southern Cagliostro has manhandled the concept of value in such a fashion that not the slightest trace of it has been left. This is the acme of vulgar economics! [1]
In Braun's Archiv für soziale Gesetzgebung, Vol. VII, No.4, Werner Sombart gives an outline of the Marxian system which, taken all in all, is excellent. It is the first time that a German university professor succeeds on the whole in seeing in Marx's writings what Marx really says, stating that the criticism of the Marxian system cannot consist of a refutation —
"let the political careerist deal with that"
— but merely in a further development. Sombart, too, deals with our subject, as is to be expected. He investigates the importance of value in the Marxian system, and arrives at the following results. Value is not manifest in the exchange relation of capitalistically produced commodities; it does not live in the consciousness of the agents of capitalist production; it is not an empirical, but a mental, a logical fact; the concept of value in its material definiteness in Marx is nothing but the economic expression for the fact of the social productive power of labor as the basis of economic existence; in the final analysis, the law of value dominates economic processes in a capitalist economic system, and for this economic system quite generally has the following content: the value of commodities is the specific and historical form in which the productive power of labor, in the last analysis dominating all economic processes, asserts itself as a determining factor. So, says Sombart, it cannot be said that this conception of the significance of the law of value for the capitalist form of production is wrong. But it does seem to me to be too broad, and susceptible of a narrower, more precise formulation: in my opinion it by no means exhausts the entire significance of the law of value for the economic stages of society's development dominated by this law.
There is a likewise excellent article by Conrad Schmidt on the third volume of Capital in Braun's Sozialpolitisches Zentralblatt, February 25, 1895, No.22. Especially to be emphasized here is the proof of how the Marxian derivation of average profit from surplus-value for the first time gives an answer to the question not even posed by economics up to now: how the magnitude of this average rate of profit is determined, and how it comes about that it is, say, 10 or 15 per cent and not 50 or 100 per cent. Since we know that the surplus-value first appropriated by the industrial capitalist is the sole and exclusive source from which profit and rent flow, this question solves itself. This passage of Schmidt's article might be directly written for economists a la Loria, if it were not labor in vain to open the eyes of those who do not want to see.
Schmidt, too, has his formal misgivings regarding the law of value. He calls it a scientific hypothesis, set up to explain the actual exchange process, which proves to be the necessary theoretical starting point, illuminating and indispensable, even in respect of the phenomena of competitive prices which seem in absolute contradiction to it. According to him, without the law of value all theoretical insight into the economic machinery of capitalist reality ceases. And in a private letter that he permits me to quote, Schmidt declares the law of value within the capitalist form of production to be a pure, although theoretically necessary, fiction. This view, however, is quite incorrect in my opinion. The law of value has a far greater and more definite significance for capitalist production than that of a mere hypothesis, not to mention a fiction, even though a necessary one.
Sombart, as well as Schmidt, — I mention the illustrious Loria merely as an amusing vulgar-economist foil — does not make sufficient allowance for the fact that we are dealing here not only with a purely logical process, but with a historical process, and its explanatory reflection in thought, the logical pursuance of its inner connections.
The decisive passage is to be found in Marx, Vol. III,:
"The whole difficulty arises from the fact that commodities are not exchanged simply as commodities, but as products of capitals, which claim participation in the total amount of surplus-value, proportional to their magnitude, or equal if they are of equal magnitude."
To illustrate this difference, it is supposed that the workers are in possession of their means of production, that they work on the average for equally long periods of time and with equal intensity, and exchange their commodities with one another directly. Then, in one day, two workers would have added by their labor an equal amount of new value to their products, but the product of each would have different value, depending on the labor already embodied in the means of production. This latter part of the value would represent the constant capital of capitalist economy, while that part of the newly-added value employed for the worker's means of subsistence would represent the variable capital, and the portion of the new value still remaining would represent the surplus-value, which in this case would belong to the worker. Thus, after deducting the amount to replace the "constant" part of value only advanced by them, both workers would get equal values; but the ratio of the part representing surplus-value to the value of the means of production — which correspond to the capitalist rate of profit — would be different in each case. But since each of them gets the value of the means of production replaced through the exchange, this would be a wholly immaterial circumstance.
"The exchange of commodities at their values, or approximately at their values, thus requires a much lower stage than their exchange at their prices of production, which requires a definite level of capitalist development.... Apart from the domination of prices and price movement by the law of value, it is quite appropriate to regard the values of commodities as not only theoretically but also historically antecedent (prius) to the prices of production. This applies to conditions in which the laborer owns his own means of production, and this is the condition of the land-owning working farmer and the craftsman, in the ancient as well as in the modern world. This agrees also with the view we expressed previously, that the evolution of products into commodities arises through exchange between different communities, not between the members of the same community. It holds not only for this primitive condition, but also for subsequent conditions, based on slavery and serfdom, and for the guild organization of handicrafts, so long as the means of production involved in each branch of production can be transferred from one sphere to another only with difficulty and therefore the various spheres of production are related to one another, within certain limits, as foreign countries or communist communities."
Had Marx an opportunity to go over the third volume once more, he would doubtless have extended this passage considerably. As it stands, it gives only a sketchy outline of what is to be said on the point in question. Let us, therefore, examine it somewhat closer.
We all know that at the beginning of society, products are consumed by the producers themselves, and that these producers are spontaneously organized in more or less communistic communities; that the exchange of the surplus of these products with strangers, which ushers in the conversion of products into commodities, is of a later date; that it takes places at first only between individual communities of different tribes, but later also prevails within the community, and contributes considerably to the latter's dissolution into bigger or smaller family groups. But even after this dissolution, the exchanging family heads remain working peasants, who produce almost all they require with the aid of their families on their own farmsteads, and get only a slight portion of the required necessities from the outside in exchange for surplus products of their own. The family is engaged not only in agriculture and livestock-raising; it also works their products up into finished articles of consumption; now and then it even does its own milling with the hand-mill; it bakes bread, spins, dyes, weaves flax and wool, tans leather, builds and repairs wooden buildings, makes tools and utensils, and not infrequently does joinery and blacksmithing; so that the family, or family group, is in the main self-sufficient.
The little that such a family had to obtain by barter or buy from outside, even up to the beginning of the 19th century in Germany, consisted principally of the objects of handicraft production — that is, such things the nature of whose manufacture was by no means unknown to the peasant, and which he did not produce himself only because he lacked the raw material or because the purchased article was much better or very much cheaper. Hence, the peasant of the Middle Ages knew fairly accurately the labor-time required for the manufacture of the articles obtained by him in barter. The smith and the cartwright of the village worked under his eyes; likewise, the tailor and shoemaker — who in my youth still paid their visits to our Rhine peasants, one after another, turning home-made materials into shoes and clothing. The peasants, as well as the people from whom they bought, were themselves workers; the exchanged articles were each one's own products. What had they expended in making these products? Labor and labor alone: to replace tools, to produce raw material, and to process it, they spent nothing but their own labor-power; how then could they exchange these products of theirs for those of other laboring producers otherwise than in the ratio of labor expended on them? Not only was the labor-time spent on these products the only suitable measure for the quantitative determination of the values to be exchanged: no other way was at all possible. Or is it believed that the peasant and the artisan were so stupid as to give up the product of 10 hours' labor of one person for that of a single hours' labor of another? No other exchange is possible in the whole period of peasant natural economy than that in which the exchanged quantities of commodities tend to be measured more and more according to the amounts of labor embodied in them. From the moment money penetrates into this mode of economy, the tendency towards adaptation to the law of value (in the Marxian formulation, nota bene!) grows more pronounced on the one hand, while on the other it is already interrupted by the interference of usurers' capital and fleecing by taxation; the periods for which prices, on average, approach to within a negligible margin of values, begin to grow longer.
The same holds good for exchange between peasant products and those of the urban artisans. At the beginning, this barter takes places directly, without the medium of the merchant, on the cities' market days, when the peasant sells and makes his purchases. Here, too, not only does the peasant know the artisan's working conditions, but the latter knows those of the peasant as well. For the artisan is himself still a bit of a peasant — he not only has a vegetable and fruit garden, but very often also has a small piece of land, one or two cows, pigs, poultry, etc. People in the Middle Ages were thus able to check up with considerable accuracy on each other's production costs for raw material, auxiliary material, and labor-time — at least in respect of articles of daily general use.
But how, in this barter on the basis of the quantity of labor, was the latter to be calculated, even if only indirectly and relatively, for products requiring a longer labor, interrupted at regular intervals, and uncertain in yield — grain or cattle, for example? And among people, to boot, who could not calculate? Obviously, only by means of a lengthy process of zigzag approximation, often feeling the way here and there in the dark, and, as is usual, learning only through mistakes. But each one's necessity for covering his own outlay on the whole always helped to return to the right direction; and the small number of kinds of articles in circulation, as well as the often century-long stable nature of their production, facilitated the attaining of this goal. And that it by no means took so long for the relative amount of value of these products to be fixed fairly closely is already proved by the fact that cattle, the commodity for which this appears to be most difficult because of the long time of production of the individual head, became the first rather generally accepted money commodity. To accomplish this, the value of cattle, its exchange ratio to a large number of other commodities, must already have attained a relatively unusual stabilization, acknowledged without contradiction in the territories of many tribes. And the people of that time were certainly clever enough — both the cattlebreeders and their customers — not to give away the labor-time expended by them without an equivalent in barter. On the contrary, the closer people are to the primitive state of commodity production — the Russians and Orientals, for example — the more time do they still waste today, in order to squeeze out, through long tenacious bargaining, the full compensation for their labor-time expended on a product.
Starting with this determination of value by labor-time, the whole of commodity production developed, and with it, the multifarious relations in which the various aspects of the law of value assert themselves, as described in the first part of Vol. I of Capital; that is, in particular, the conditions under which labor alone is value-creating. These are conditions which assert themselves without entering the consciousness of the participants and can themselves be abstracted from daily practice only through laborious, theoretical investigation; which act, therefore, like natural laws, as Marx proved to follow necessarily from the nature of commodity production. The most important and most incisive advance was the transition to metallic money, the consequence of which, however, was that the determination of value by labor-time was no longer visible upon the surface of commodity exchange. From the practical point of view, money became the decisive measure of value, all the more as the commodities entering trade became more varied, the more they came from distant countries, and the less, therefore, the labor-time necessary for their production could be checked. Money itself usually came first from foreign parts; even when precious metals were obtained within the country, the peasant and artisan were partly unable to estimate approximately the labor employed therein, and partly their own consciousness of the value-measuring property of labor had been fairly well dimmed by the habit of reckoning with money; in the popular mind, money began to represent absolute value.
In a word: the Marxian law of value holds generally, as far as economic laws are valid at all, for the whole period of simple commodity production — that is, up to the time when the latter suffers a modification through the appearance of the capitalist form of production. Up to that time, prices gravitate towards the values fixed according to the Marxian law and oscillate around those values, so that the more fully simple commodity production develops, the more the average prices over long periods uninterrupted by external violent disturbances coincide with values within a negligible margin. Thus, the Marxian law of value has general economic validity for a period lasting from the beginning of exchange, which transforms products into commodities, down to the 15th century of the present era. But the exchange of commodities dates from a time before all written history — which in Egypt goes back to at least 2500 B.C., and perhaps 5000 B.C., and in Babylon to 4000 B.C., perhaps to 6000 B.C.; thus, the law of value has prevailed during a period of from five to seven thousand years. And now, let us admire the thoroughness of Mr. Loria, who calls the value generally and directly valid during this period a value at which commodities are never sold nor can ever be sold, and with which no economist having a spark of common sense would ever occupy himself!
We have not spoken of the merchant up to now. We could save the consideration of this intervention for now, when we pass to the transformation of simple into capitalist commodity production. The merchant was the revolutionary element in this society where everything else was stable — stable, as it were, through inheritance; where the peasant obtained not only his hide of land, but his status as a freehold proprietor, as a free or enthralled quit-rent peasant or serf, and the urban artisan his trade and guild privileges by inheritance and almost inalienably, and each of them, in addition, his customer, his market, as well as his skill, trained from childhood for the inherited craft. Into this world then entered the merchant, with whom its revolution was to start. But not as a conscious revolutionary; on the contrary, as flesh of its flesh, bone of its bone. The merchant of the Middle Ages was by no means an individualist; he was essentially an associate like all his contemporaries. The mark association, grown out of primitive communism, prevailed in the countryside. Each peasant originally had an equal hide, with equal pieces of land of each quality, and a corresponding, equal share in the rights of the mark. After the mark had become a closed association, and no new hides were allocated any longer, subdivision of the hides occurred through inheritance, etc., with corresponding subdivisions of the common rights in the mark; but the full hide remained the unit, so that there were half, quarter and eighth-hides with half, quarter and eighth-rights in the mark. All later productive associations, particularly the guilds in the cities, whose statutes were nothing but the application of the mark constitution to a craft privilege instead of to a restricted area of land, followed the pattern of the mark association. The central point of the whole organization was the equal participation of every member in the privileges and produce assured to the guild, as is strikingly expressed in the 1527 licence of the Elberfeld and Barmen yarn trade. (Thun: Industrie am Niederrhein, Vol. II, 164 ff.) The same holds true of the mine guilds, where each share participated equally and was also divisible, together with its rights and obligations, like the hide of the mark member. And the same holds good in no less degree of the merchant companies, which initiated overseas trade. The Venetians and the Genoese in the harbor of Alexandria or Constantinople, each "nation" in its own fondaco — dwelling, inn, warehouse, exhibition and salesrooms, together with central offices — formed complete trade associations; they were closed to competitors and customers; they sold at prices fixed among themselves; their commodities had a definite quality guaranteed by public inspection and often by stamp; they deliberated in common on the prices to be paid by the natives for their products, etc. Nor did Hanseatic merchants act otherwise on the German Bridge (Tydske Bryggen) in Bergen, Norway; the same holds true of their Dutch and English competitors. Woe to the man who sold under the price or bought above the price! The boycott that struck him meant at that time inevitable ruin, not counting the direct penalties imposed by the association upon the guilty. And even close associations were founded for definite purposes, such as the Maona of Genoa in the 14th and 15th centuries, for years the ruler of the alum mines in Phocaea in Asia Minor, as well as of the Island of Chios; furthermore, the great Ravensberg Trading Company, which dealt with Italy and Spain since the end of the 14th century, founding branches in those countries; the German company of the Augsburgers: Fugger, Welser, Vöhlin, Höchstetter, etc; that of the Nürnbergers: Hirschvogel and others, which participated with a capital of 66,000 ducats and three ships in the 1505-06 Portuguese expedition to India, making a net profit of 150 per cent, according to others 175 per cent (Heyd; Levantehandel, Vol. II, p.524); and a large number of other companies, "Monopolia," over which Luther waxes so indignant.
Here, for the first time, we meet with a profit and a rate of profit. The merchant's efforts are deliberately and consciously aimed at making this rate of profit equal for all participants. The Venetians in the Levant, and the Hanseatics in the North, each paid the same prices for his commodities as his neighbor; his transport charges were the same, he got the same prices as every other merchant of his "nation". Thus, the rate of profit was equal for all. In the big trading companies, the allocation of profit pro rata of the paid-in capital share is as much a matter of course as the participation in mark rights pro rata of the entitled hide share, or as the mining profit pro rata of the mining share. The equal rate of profit, which in its fully developed form is one of the final results of capitalist production, thus manifests itself here in its simplest form as one of the points from which capital started historically, as a direct offshoot in fact of the mark association, which in turn is a direct offshoot of primitive communism.
This original rate of profit was necessarily very high. The business was very risky, not only because of wide-spread piracy; the competing nations also permitted themselves all sorts of acts of violence when the opportunity arose; finally, sales and marketing conditions were based upon licences granted by foreign prices, which were broken or revoked often enough. Hence, the profit had to include a high insurance premium. The turnover was slow, the handling of transactions protracted, and in the best periods — which, admittedly, were seldom of long duration — the business was a monopoly trade with monopoly profit. The very high interest rates prevailing at the time, which always had to be lower on the whole than the percentage of usual commercial profit, also prove that the rate of profit was on the average very high.
But this high rate of profit, equal for all participants and obtained through joint labor of the community, held only locally within the associations — that is, in this case the "nation," Venetians, Genoese, Hanseatics, and Dutchmen each had a special rate of profit, and at the beginning more or less each individual market areas, as well. Equalization of these different company profit rates took place in the opposite way, through competition. First, the profit rates of the different markets for one and the same nation. If Alexandria offered more profit for Venetian goods than Cyprus, Constantinople, or Trebizond, the Venetians would start more capital moving towards Alexandria, withdrawing it from trade with other markets. Then, the gradual equalization of profit rates among the different nations, exporting the same or similar goods to the same markets, had to follow, and some of these nations were very often squeezed to the wall and disappeared from the scene. But this process was being continually interrupted by political events, just as all Levantine trade collapsed owing to the Mongolian and Turkish invasions; the great geographic-commercial discoveries after 1492 only accelerated this decline and then made it final.
The sudden expansion of the market area that followed the revolution in communications connected with it, introduced no essential change at first in the nature of trade operations. At the beginning, co-operative companies also dominated trade with India and America. But in the first place, bigger nations stood behind these companies. In trade with America, the whole of great united Spain took the place of the Catalonians trading with the Levant; alongside it, two countries like England and France; and even Holland and Portugal, the smallest, were still at least as large and strong as Venice, the greatest and strongest trading nation of the preceding period. This gave the traveling merchant, the merchant adventurer of the 16th and 17th centuries, a backing that made the company, which protected its companions with arms, also, more and more superfluous, and its expenses an outright burden. Moreover, the wealth in a single hand grew considerably faster, so that single merchants soon could invest as large sums in an enterprise as formerly an entire company. The trading companies, wherever still existent, were usually converted into armed corporations, which conquered and monopolistically exploited whole newly discovered countries under the protection and the sovereignty of the mother country. But the more colonies were founded in the new areas, largely by the state, the more did company trade recede before that of the individual merchant, and the equalization of the profit rate became therewith more and more a matter of competition exclusively.
Up to now, we have become acquainted with a rate of profit only for merchant capital. For only merchant and usurers' capital had existed up to that time; industrial capital was yet to be developed. Production was still predominantly in the hands of workers owning their own means of production, whose work therefore yielded no surplus-value to any capital. If they had to surrender a part of the product to third parties without compensation, it was in the form of tribute to feudal lords. Merchant capital, therefore, could only make its profit, at least at the beginning, out of the foreign buyers of domestic products, or the domestic buyers of foreign products; only toward the end of this period — for Italy, that is, with the decline of Levantine trade — were foreign competition and the difficulty of marketing able to compel the handicraft producers of export commodities to sell the commodity under its value to the exporting merchant. And thus we find here that commodities are sold at their value, on the average, in the domestic retail trade of individual producers with one another, but, for the reasons given, not in international trade as a rule. Quite the opposite of the present-day world, where the production prices hold good in international and wholesale trade, while the formations of prices in urban retail trade is governed by quite other rates of profit. So that the meat of an ox, for example, experiences today a greater rise in price on its way from the London wholesaler to the individual London consumer than from the wholesaler in Chicago, including transport, to the London wholesaler.
The instrument that gradually brought about this revolution in price formation was industrial capital. Rudiments of the latter had been formed as early as the Middle Ages, in three fields — shipping, mining, and textiles. Shipping on the scale practiced by the Italian and Hanseatic maritime republics was impossible without sailors, i.e., wage-laborers (whose wage relationship may have been concealed under association forms with profit-sharing), or without oarsmen — wage-laborers or slaves — for the galleys of that day. The guilds in the ore mines, originally associated workers, had already been converted in almost every case into stock companies for exploiting the deposits by means of wage-laborers. And in the textile industry, the merchant had begun to place the little master-weaver directly in his service, by supplying him with yarn and having it made into cloth for his account in return for a fixed wage — in short, by himself changing from a mere buyer into a so-called contractor.
Here we have the first beginnings of the formation of capitalist surplus-value. We can ignore the mining guilds as closed monopoly corporations. With regard to the ship-owners, it is obvious that their profit had to be at least as high as the customary one in the country, plus an extra increment for insurance, depreciation of ships, etc. But how were matters with the textile contractors, who first brought commodities, directly manufactured for capitalist account, into competition with the commodities of the same sort made for handicraft account?
Merchant capital's rate of profit was at hand to start with. Likewise, it had already been equalized to an approximate average rate, at least for the locality in question. Now, what could induce the merchant to take on the extra business of a contractor? Only one thing: the prospect of greater profit at the same selling price as the others. And he had this prospect. By taking the little master into his service, he broke through the traditional bonds of production within which the producer sold his finished product and nothing else. The merchant capitalist bought the labor-power, which still owned its production instruments but no longer the raw material. By thus guaranteeing the weaver regular employment, he could depress the weaver's wage to such a degree that a part of the labor-time furnished remained unpaid for. The contractor thus became an appropriator of surplus-value over and above his commercial profit. Admittedly, he had to employ additional capital to buy yarn, etc., and leave it in the weaver's hands until the article for which he formerly had to pay full price only upon purchasing it, was finished. But, in the first place, he had already used extra capital in most cases for advances to the weaver, who as a rule submitted to the new production conditions only under the pressure of debt. And, secondly, apart from that, the calculation took the following form:
Assume that our merchant operates his export business with capital of 30,000 ducats, sequins, pounds sterling or whatever is the case. Of that, say 10,000 are engaged in the purchase of domestic goods, whereas 20,000 are used in the overseas market. Say the capital is turned over once in two years. Annual turnover = 15,000. Now, our merchant wants to become a contractor, to have cloth woven for his own account. How much additional capital must he invest? Let us assume that the production time of the piece of cloth, such as he sells, averages two months — which is certainly very high. Let us further assume that he has to pay for everything in cash. Hence, he must advance enough capital to supply his weavers with yarn for two months. Since his turnover is 15,000 a year, he buys cloth for 2,500 in two months. Let us say that 2,000 of that represents the value of yarn, and 500 weavers' wages; then our merchant requires an additional capital of 2,000. We assume that the surplus-value he appropriates from the weaver by the new method totals only 5 per cent of the value of the cloth, which constitutes the certainly very modest surplus-value rate of 25 per cent. ( 2,000c + 500v + 125s; s' = 125/500 = 25%, p' = 125/2,500 = 5%). Our man then makes an extra profit of 750 on his annual turnover of 15,000, and has thus got his additional capital back in 2⅔ years.
But in order to accelerate his sales and hence his turnover, thus making the same profit with the same capital in a shorter period of time, and hence a greater profit in the same time, he will donate a small portion of his surplus-value to the buyer — he will sell cheaper than his competitors. These will also gradually be converted into contractors, and then the extra profit for all of them will be reduced to the ordinary profit, or even to a lower profit on the capital that has been increased for all of them. The equality of the profit rate is re-established, although possibly on another level, by a part of the surplus-value made at home being turned over to the foreign buyers.
The next step in the subjugation of industry by capital takes place through the introduction of manufacture. This, too, enable the manufacturer, who is most often his own export trader in the 17th and 18th centuries — generally in Germany down to 1850, and still today here and there — to produce cheaper than his old-fashioned competitor, the handicraftsman. The same process is repeated; the surplus-value appropriated by the manufacturing capitalist enables him (or the export merchant who shares with him) to sell cheaper than his competitors, until the general introduction of the new mode of production, when equalization against takes place. The already existing mercantile rate of profit, even if it is levelled out only locally, remains the Procrustean bed in which the excessive industrial surplus-value is lopped off without mercy.
If manufacturing sprung ahead by cheapening its products, this is even more true of modern industry, which forces the production costs of commodities lower and lower through its repeated revolutions in production, relentlessly eliminating all former modes of production. It is large-scale industry, too, that thus finally conquers the domestic market for capital, puts an end to the small-scale production and natural economy of the self-sufficient peasant family, and places the entire nation in service of capital. Likewise, it equalizes the profit rate of the different commercial and industrial branches of business into one general rate of profit, and finally ensures industry the position of power due to it in this equalization by eliminating most of the obstacles formerly hindering the transfer of capital from one branch to another. Thereby the conversion of values into production prices is accomplished for all exchange as a whole. This conversion therefore proceeds according to objective laws, without the consciousness or the intent of the participants. Theoretically, there is no difficulty at all in the fact that competition reduces to the general level profits which exceed the general rate, thus again depriving the first industrial appropriator of the surplus-value exceeding the average. All the more so in practice, however, for the spheres of production with excessive surplus-value, with high variable and low constant capital — i.e., with low capital composition — are by their very nature the ones that are last and least completely subjected to capitalist production, especially agriculture. On the other hand, the rise of production prices above commodity values, which is required to raise the below-average surplus-value, contained in the products of the spheres of high capital composition, to the level of the average rate of profit, appears to be extremely difficult theoretically, but is soonest and most easily effected in practice, as we have seen. For when commodities of this class are first produced capitalistically and enter capitalist commerce, they compete with commodities of the same nature produced by per-capitalist methods and hence dearer. Thus, even if the capitalist producer renounces a part of the surplus-value, he can still obtain the rate of profit prevailing in his locality, which originally had no direct connection with surplus-value because it had arisen from merchant capital long before there was any capitalist production at all, and therefore before an industrial rate of profit was possible.
The Stock Exchange
1. The position of the stock exchange in capitalist production in general is clear from Vol. III, Part 5, especially Chapter [27]. But since 1865, when the book was written, a change has taken place which today assigns a considerably increased and constantly growing role to the stock exchange, and which, as it develops, tends to concentrate all production, industrial as well as agricultural, and all commerce, the means of communication as well as the functions of exchange, in the hands of stock exchange operators, so that the stock exchange becomes the most prominent representative of capitalist production itself.
2. In 1865 the stock exchange was still a secondary element in the capitalist system. Government bonds represented the bulk of exchange securities, and even their sum-total was still relatively small. Besides, there were joint-stock banks, predominant on the continent and in America, and just beginning to absorb the aristocratic private banks in England, but still relatively insignificant en masse. Railway shares were still comparatively weak compared to the present time. There were still only few directly productive establishments in stock company form — and, like the banks, most of all in the poorer countries: Germany, Austria, America, etc. The "minister’s eye" was still an unconquered superstition.
At that time, the stock exchange was still a place where the capitalists took away each other’s accumulated capital, and which directly concerned the workers only as new proof of the demoralising general effect of capitalist economy and as confirmation of the Calvinist doctrine that predestination (alias chance) decides, even in this life, blessedness and damnation, wealth, i.e., enjoyment and power, and poverty, i.e., privation and servitude.
3. Now it is otherwise. Since the crisis of 1866 accumulation has proceeded with ever-increasing rapidity, so that in no industrial country, least of all in England, could the expansion of production keep up with that of accumulation, or the accumulation of the individual capitalist be completely utilised in the enlargement of his own business; English cotton industry as early as 1845; the railway swindles. But with this accumulation the number of rentiers, people who were fed up with the regular tension in business and therefore wanted merely to amuse themselves or to follow a mild pursuit as directors or governors of companies, also rose. And third, in order to facilitate the investment of this mass floating around as money-capital, new legal forms of limited liability companies were established wherever that had not yet been done, and the liability of the shareholder, formerly unlimited, was also reduced ± [more or less] (joint-stock companies in Germany, 1890. Subscription 40 per cent!).
4. Thereafter, gradual conversion of industry into stock companies. One branch after another suffers this fate. First iron, where giant plants are now necessary (before that, mines, where not already organised on shares). Then the chemical industry, likewise machinery plants. On the continent, the textile industry; in England, only in a few areas in Lancashire (Oldham Spinning Mill, Burnley Weaving Mill, etc., tailor co-operatives, but this is only a preliminary stage which will again fall into the masters’ hands at the next crisis), breweries (the American ones sold a few years ago to English capital, then Guinness, Bass, Allsopp). Then the trusts, which create gigantic enterprises under common management (such as United Alkali). The ordinary individual firm is more and more only a preliminary stage to bring the business to the point where it is big enough to be "founded."
Likewise in trade: Leafs, Parsons, Morleys, Morrison, Dillon — all founded. The same in retail stores by now, and not merely under the cloak of co-operation à la "stores."
Likewise banks and other credit establishments even in England. A tremendous number of new banks, all shares delimited. Even old banks etc., are converted, with seven private shareholders, into limited companies.
5. The same in the field of agriculture. The enormously expanded banks, especially in Germany under all sorts of bureaucratic names, more and more the holders of mortgages; with their shares the actual higher ownership of landed property is transferred to the stock exchange, and this is even more true when the farms fall into the creditors’ hands. Here the agricultural revolution of prairie cultivation is very impressive; if it continues, the time can be foreseen when England’s and France’s land will also be in the hands of the stock exchange.
6. Now all foreign investments in the form of shares. To mention England alone: American railways, North and South (consult the stock exchange list), Goldberger, etc.
7. Then colonisation. Today this is purely a subsidiary of the stock exchange, in whose interests the European powers divided Africa a few years ago, and the French conquered Tunis and Tonkin. Africa leased directly to companies (Niger, South Africa, German South-West and German East Africa), and Mashonaland and Natal seized by Rhodes for the stock exchange.