on 13 June 2015
The third volume of Karl Marx's Capital was first published in 1894. Under the editorship of Friedrich Engels, the book was assembled from a vast manuscript varying in quality. As Engels states in his Preface, the draft's 'ever longer and more intricate' (p.92-3) sentences made the work 'more and more difficult and eventually, at times, quite impossible' (p.93) to follow. So Engels decided to let the work sink or swim as it was, leaving himself with the tedious duty of tidying up the syntax and deciphering the digressions. But sometimes even this method was unworkable. And so, worrying about the mass of suggestive yet unfinished ideas in the text, and their possible misinterpretation, Engels dedicatedly filled in the blanks (and even wrote an entire chapter, Chapter 4, 'The Effect of the Turnover on the Rate of Profit'). Nevertheless, despite the best efforts of its midwife, Volume III is a hit-and-miss affair, although it's one frequently redeemed by Marx's breathtaking insights into the capitalist mode of production, insights that easily match any of the famous declarations ringing from the pages of Volume I.
If Volume I dealt with the generation of surplus-value in the factory (supply), and Volume II the distribution and consumption of those goods on the market (demand), then Volume III, in Ernest Mandel's words, seeks to elucidate 'capitalist economy in its totality' (p.10). So cue the inevitable question: can anyone really synthesise such a wild and shapeshifting system? Can Marx? In a word, no. But despite the ramshackle nature of Volume III, Marx goes further than most, and it's this revolutionary spirit that continues to cause controversy in the staid world of political economy, or, to use its modern moniker, economics. But just what was he trying to communicate? And why were (are) his findings so controversial, especially in Volume III?
To answer these questions we must delve into the text. To start with, Marx rebrands what has gone before. For instance, in Chapter 1, 'Cost Price and Profit', Marx changes our perception of commodity values. Whereas C (the commodity) used to equal c + v + s, it can now equal k + p, cost price plus profit, or C = k + p, where the cost price is an amalgamation of the values c + v. Basically, the cost price of a commodity is the absolute lower limit a commodity can be sold for, otherwise the capitalist will not recoup the capital needed to restart the production process. This idea feeds into Marx's interpretation of the rate of profit, for it's this rate, and not the rate of surplus-value (s/v), that worms its way into the dreams of the intrepid capitalist. To work out the profit rate, then, Marx uses the formula s/C (where C = c + v). Take note, however, that when working out the rate of profit and the rate of surplus-value, the mass of profit and surplus-value always stays the same; it's only the rate that changes. In short, the two are separate standards for measuring the same quantity (s). Yet Marx is right to differentiate between the two, because with s/v the relationship between the capitalist and the worker is laid bare, the exploitation exposed; yet with s/C, the profit assumes 'a form in which its origin and the secret of its existence are veiled and obliterated' (p.139), i.e. it obscures its creation in the worker's surplus/unnecessary labour. (Also, the rate of profit, unlike the mass of commodity values, is 'determined by the total value of the capital applied, irrespective of how much of this is consumed' (p.203) in the production process.)
To investigate the mutations of profit, Marx dusts off his abacus, and we are once again in the mathematical hellhole that is Marx's brain. Yet this pedantry is essential, if only to show the plenitude of factors that need to be taken into account when dealing with an erratic profit rate, things such as the value of money, changes in price, turnover times, the productivity of labour, the length of the working day, wages, etc. In Chapter 5, 'Economy in the Use of Constant Capital', Marx performs a fascinating survey of all the various ways capitalists can drive profit skywards (or downwards), but his most revealing point is the distinction made between universal labour and communal labour. Simply put, universal labour is a dialogue between the living and the dead, and it's a way of utilising all the 'scientific work...discovery and invention' (p.199) that marked the progress of industrialism, and usually at the expense of the 'pioneering entrepreneurs' (ibid) who went 'bankrupt' (ibid) in the process; communal labour, meanwhile, is 'the direct cooperation of individuals' (ibid) in implementing these profit-laden inventions for opportunistic capitalists – a typical Marxian sentiment.
Marx spends the next few chapters introducing one of his most controversial ideas: the transformation of commodity values into prices of production, or the so-called 'transformation problem'. Before doing so, he gives a précis of the differing compositions of capital, i.e. technical, value, and organic; he also shows how both the organic composition (c/v) of a particular capital and the turnover time of this particular capital have an important effect on profit. But this is all a mere taster for the main event – the formation of a general rate of profit. To work out the general rate of profit, Marx adds together the various capital compositions. So: Cap I = 80c + 20v, Cap II = 70c + 30v, Cap III 60c + 40v, Cap IV = 85c + 15v, and Cap 5 = 95c + 5v. If we then add all these together we get a total of 390c + 110v. To make this a percentage: 390(c) ÷ 500 (c + v) = 78c; 110(v) ÷ 500 (c + v) = 22v. So the average composition across the five spheres equals 78c + 22v. If the surplus-value is 100% then £22 must be added to each commodity, thus distributing the average profit of 22% across the five capitals. For Marx, the price of production is determined by the average profit being 'added to the cost prices of these different spheres of production' (p.257), and so 'the production price of a commodity equals its cost price [k = c + v] plus the percentage profit [p] added to it in accordance with the general rate of profit, its cost price plus the average profit [or k + p]' (ibid).
For example, take Cap I (and here we suppose that all the constant capital is consumed in the production of a commodity, which is very unlikely). 80c + 20v + 20s = 120, its value; now, however, and according to the new price of production, it is 80c + 20v + 22p, which equals 122. So, as you can see, this product now has a mark-up of £2, which means it is sold above its value. Now if we take Cap III (60c + 40v + 40s = 140) and transform this commodity into its new price of production, then 60c + 40v + 22p = 122, a drop of £18, and so on. This is a very simple example in which every commodity ends up at the same price. Marx, however, makes these calculations far more complex by including the wear and tear of the constant (fixed) capital; but, in essence, the theory is still the same.
This has caused a lot of controversy. For instance, how can values go in and prices of production come out? Aren't the constant capital and the variable capital, when going into the production process, also determined by prices of production? So surely nothing ever sells at its value, unless by happenstance it coincides with its price of production? Yet for Marx they all balance themselves out in the end, as the prices of production ensure that the capitalists' 'dividends are evenly distributed...according to the size of the capital that each of them has put into the common enterprise' (p.258). So where does this leave the labour theory of value in determining the value of commodities? Well, nothing's really changed. The 'basis for determining value is...removed from view' (p.268) but the 'law of value [still] regulates the prices of production' (p.281), and thus all 'changes in the price of production of a commodity can be ultimately reduced to a change in value' (p.308).
Next, in Part Three, Marx introduces 'The Law of the Tendential Fall in the Rate of Profit', which, again, is still hotly disputed. To summarise the argument, we must use Marx's simplistic example. Using his ratio for the organic composition of capital, c/v, and the formula for the rate of profit, s/C, Marx shows how a drop in the rate of profit is created by an overinvestment in the constant capital at the expense of the variable. So, if s = 100 (and for all these examples we will assume that it stays at 100), and c = 50 and v = 100, then p' = 100 ÷ 150 = 66.66% (or p' = s/C); if c = 100 and v = 100, then p' = 100 ÷ 200 = 50%; if c = 200 and v = 100, then p' = 100 ÷ 300 = 33.33%, and so on. Taking the capitalist mode of production as a whole, Marx posits that its 'development does in fact involve a relative decline in the relation of variable capital to constant' (p.318), as the 'same number of workers operate with a constant capital of ever-growing size' (ibid). But this drop in the profit rate does not necessarily entail a drop in the mass of profit, because a 'fall in the price of commodities produced by capital is accompanied by a relative rise in the amount of profit contained in them and realized by their sale' (p.332), i.e. if the 'rate of absolute or relative surplus-value' (p.333) increases, the less necessary labour contained in the commodity ensures the unpaid portion, i.e. profit, goes up. But upping the rate of surplus-value is only a stopgap, as the variable capital/necessary labour can never be reduced to zero, otherwise the labour power will not be able to recreate itself or purchase the products they produce. On the other hand, the cheaper the product the more they can sell.
There are, however, numerous ways to control this drop in profits, and it's these that ensure Marx's 'law operates more as a tendency, i.e. as a law whose absolute realization is held up, delayed and weakened by counteracting factors' (p.341-2). These include an increased intensification of labour (thereby driving up the rate of surplus-value), knocking wages down below their value, cheapening the constant capital, exporting for foreign trade, etc, etc. Yet despite the capitalist's 'horror at the falling rate of profit' (p.350), they cannot, and will not, acknowledge that 'The true barrier to capitalist production is capital itself' (p.358). And so, instead of making the necessary admission, they will aim to counteract this fall in the rate of profit by cartwheeling down 'adventurous paths' (p.359), which unwittingly provoke paroxysms of 'speculation, credit swindles, share swindles, [and] crises' (ibid). Fundamentally, though, Marx believes that this drop in the rate of profit is the true harbinger of crises, because it entices the capitalists to behave in a grotesquely irrational manner. Nevertheless, due to the transitory nature of the crises, they are 'never more than momentary, violent solutions for the existing contradictions, violent eruptions that re-establish the disturbed balance for the time being' (p.357).
The following chapters introduce 'Part Four: The Transformation of Commodity Capital and Money Capital into Commercial Capital and Money-Dealing Capital (Merchant's Capital)'. Considering the density of the first three parts, this section is a rather enjoyable read, and one where Marx reiterates that in the circulation sphere, which is where commercial capital operates, 'no value is produced, and thus no surplus-value' (p.392). So why is commercial capital so important to the capitalist? Because it reduces circulation time and speeds up the realisation of surplus-value in the marketplace. But how do commercial capitalists make a profit? Well, because commercial capital 'contributes to the formation of the general rate of profit according to the proportion it forms in the total capital' (p.398), and because it peddles the numerous products on the market at its own expense, it now has an entitlement to a share of the profit. Whereas the price of production used to equal k + p, Marx now updates it to include the commercial capitalists' demands, so the price of production now equals 'k + p + m (where m is commercial profit)' (p.399). And due to the central role commercial capital plays in the realisation of value, the industrial capitalist is willing to sell their commodities at 'less than their value' (ibid). So, if the 'industrial capitalist's profit is equal to the excess of the production price of his commodity over its cost price' (ibid), then the 'commercial profit is equal to the excess of the sale price over the commodity's production price, which is its purchase price for the merchant' (ibid). But, ultimately, 'the real price of the commodity = its production price + the commercial profit' (ibid). The rest of Part Four deals with the turnover of commercial capital, money-dealing capital, and the historical development of merchant's capital.
[If, however, you're losing the will to live by this point in the book, Marx delivers some avuncular advice: 'As the reader will have recognized in dismay, the analysis of the real, inner connections of the capitalist production process is a very intricate thing and a work of great detail' (p.428). So, with this mind, on we go...]
'Part Five: The Division of Profit into Interest and Profit of Enterprise' is an incredibly important part of the book. In Chapter 21, 'Interest-Bearing Capital', Marx begins to investigate how 'money as capital becomes a commodity' (p.463). But 'what does the money capitalist give the borrower, the industrial capitalist?' (p.472). Put succinctly, he alienates his own capital as a commodity, and gives its use-value, i.e. its ability to produce a profit, to the industrial capitalist. Yet this also obscures the process of value production. For the moneylender, his lending will represent a return, M-M', or M + ΔM. But this hides the real process of production, which, with the industrial capitalist's input, equals M-M-C-M'-M'. The M' represents interest for the moneylender, i.e. 'the price that the lender is paid' (p.476) for alienating their use-value. But what is the average rate of interest? There isn't one, as 'the natural rate of interest simply means the rate established by free competition' (p.478). So, worryingly, Marx concludes that there are no '''natural'' limits to the interest rate' (ibid), thus rendering the repayment of interest as 'something inherently lawless and arbitrary' (ibid).
So if interest is simply a part of the profit (surplus-value) that the functioning capitalist pays to the lender of the capital, what happens to the rest of it? This, which Marx calls 'profit of enterprise' (p.496), goes to the capitalist as a reward for his valiant endeavours. But what is really important here is the establishment of a new class relationship, and it's one that consists of moneylender and capitalist rather than capitalist and worker. Yet, for Marx, the whole process of lending interest-bearing capital ensures that the 'capital relationship reaches its most superficial and fetishized form' (p.515), which, in M-M', embodies 'the irrational form of capital, [and] the misrepresentation and objectification of the relations of production' (p.516) – it is 'capital mystification in the most flagrant form' (ibid). After these important observations, though, Volume III descends into chaos. Marx begins, and in a very slipshod fashion, to look at the problem of credit, the system which allows capitalists to gamble with other people's money, thus risking 'social property, [which is] not his own' (p.570). It is a brave new world in which the 'little fishes are gobbled up by the sharks, and sheep by the stock-exchange wolves' (p.571). And it's this dystopian greed which permits the capitalists to overextend themselves, thus ensuring that any sensible barrier to production can be leapfrogged 'by the credit system' (p.572). This, however, leads to two contrary positions. Firstly, it enhances the concentration of capital in fewer hands, which is the end result of a 'most colossal system of gambling and swindling' (p.572); but secondly, and most crucially, it also holds some revolutionary potential, as the persistent crises, coupled with the concentration of wealth and means of production, lay the groundwork for a smooth 'transition towards a new mode of production' (ibid).
And the credit system, in all its many manifestations, leads to fictitious capital. Marx divides banking capital into '(1) cash, in the form of gold or notes; (2) securities' (p.594). He further splits securities into (a) commercial papers and current bills of exchange and (b) public securities, such as mortgages, 'government bonds, treasury bills and stocks of all kinds' (ibid). This involves a whole new creditor/debtor relationship. For instance, a creditor may not be able to recall their capital from their debtor but they can sell their claim, or the 'title of ownership' (p.595), to another person. And why can't they recall their money? Because the 'capital itself has been consumed, spent...It no longer exists' (ibid). Yet this claim enables the owner to accrue interest payments on a figure of money which has disappeared, and so the actual monetary value is 'illusory and fictitious' (ibid). And so here we see the emergence of things like shares, although a 'share is nothing but an ownership title...to the surplus-value' (p.597) which a capital is yet to realise. (With these arguments in mind, Marx pertinently observes that 'interest-bearing capital...[is] the mother of every insane form' (p.596) of money handling.) Anyhow, it is this spectral nature that constitutes the gambling aspect of stocks and shares, and it's this formation of fictitious capital that Marx labels 'capitalization' (p.597), as all 'these securities actually represent nothing but accumulated claims, legal titles, to future production' (p.599). Marx goes on to show how some capitals come 'to be duplicated, and at some points triplicated' (p.601) in 'various hands in different guises' (ibid). But these are, in reality, simply 'paper duplicates of annihilated capital' (p.608), 'nominal representatives of non-existent capitals' (p.608). They can be traded like commodities, but if the concern invested in goes bust, there is no surplus-value production and thus no growth or return – the money's gone.
After this brief exposition of fictitious capital, teasingly unfinished, Marx moves on to discussing the means of circulation under the credit system, the currency principle and 1844 Bank Act, exchange rates, precious metals, and so on. This part of the book is very confusing and it is hard to find a consistent line of thought. In his Preface, Engels admits defeat in trying to sort it all out, as the 'extracts from the parliamentary reports on the crises of 1848 and 1857' (p.95), featuring the pre-eminent bankers of the day, were jumbled together with the sporadic inclusion of Marx's 'humorous comments' (ibid). As such, there is absolutely no cohesion to these chapters, and Engels was further inhibited by Marx's penchant for 'digressions, [and] asides' (ibid). Yet there is, for those who persevere, a stunning chapter on 'Pre-Capitalist Formations'. In it, Marx discusses the historical roots of modern industrial capitalism and its gruesome twin, the banking system. He's scathing of capitalism's various myths, such as how a 'man without wealth but with energy, determination, ability and business acumen can transform himself into a capitalist' (p.735). This, for Marx, is pure bunkum, and he reaffirms how only the chosen few are handpicked to make the transition, because the 'more a dominant class is able to absorb the best people from the dominated classes, the more solid and dangerous is its rule' (p.736). The banking system, meanwhile, is 'the most artificial and elaborate product brought into existence by the capitalist mode of production' (p.742), and it is one that places too much money in the hands of the industrial capitalists, who, in smashing through any barriers of production, create orgies of 'crises and swindling' (ibid). Yet 'there can be no doubt that the credit system will serve as a powerful lever in the course of transition from the capitalist mode of production to the mode of production of associated labour' (p.743). So the banks will remain a feature in an emancipated society, but they will be heavily regulated and gradually phased out...
'Part Six: The Transformation of Surplus Profit into Ground-Rent' is a difficult and intricate section of the book. Essentially, Marx wants to explore why a 'portion of the surplus-value that capital produces falls to the share of the landowner' (p.751). In doing so, he stipulates that the 'monopoly of landed property is a historical precondition for the capitalist mode of production and remains its permanent foundation' (p.754). And so, in the eyes of the landowner, his land is a commodity like any other, endowed with a use-value and an exchange-value, and thus one that should bring a return when lent to a capitalist. And that return, paid at a contractually fixed date, is called ground-rent, and thus ground-rent is 'the form in which landed property is economically realized, [and] valorized' (p.756). This, as can be imagined, leads to a fractious relationship between capitalist and landowner, and one that reasserts the tripartite structure of society, for there are now three classes rather than two: 'wage-labourers, capitalists and landowners' (p.1025). And why the fractiousness? Because 'there develops in landed property the ability to capture a growing portion of...surplus-value by way of its monopoly of the earth and hence to raise the value of its rent and the price of the land itself' (p.776). And this, much to the annoyance of the capitalists, ensures that the landowner, despite playing no part in creating 'the portion of value that is transformed into surplus profit' (p.786), can 'entice this surplus profit out of the manufacturer's pocket and into his own' (ibid).
After this general introduction to ground-rent, there follows a complicated exposition of Differential Rent I and Differential Rent II. These pages are a mixture of tedium and illumination punctuated by tables galore. I will not go into this section in great detail, because I'm unsure of it myself – it is going to take repeated readings. There are, however, a few salient points. Marx, always in love with simple yet effective formulas, calculates the average rent per acre by dividing the total rent by the number of acres; and then, to determine the average rate of rent, he divides the total rent by the total capital invested (p.805). He also, and Engels makes a note of this in Preface, clearly lost his way, so there's a list of what he wished to cover on p.860. There is also, on p.861, a bite-sized explanation of Differential Rent I and II. In short, Differential Rent I is 'the investment of the total agricultural capital on an acreage consisting of types of land of differing fertility' (p.861), while Differential Rent II is driven by the 'varying differential productivity of successive capital investments on the same land' (ibid). If this all sounds confusing, then that's because it is, but the myriad tables do begin to make sense after a while, although they are at times akin to the levels of boredom associated with the reproduction schemas in Volume II. Marx concludes by tackling absolute rent, which arises from 'the excess value over and above the price of production' (p.898) or 'an excess monopoly price for the product above its value' (p.941).
But, regardless of all these different types of rent, the essential relationship to note is that of capitalist and landowner. The landowner acts a 'barrier to the investment of capital and its unrestricted valorization' (p.884) of the land, and so the capitalist 'comes up against an alien power' (p.896). Marx depicts such an arbitrary compartmentalising of the land, and the rise of private property in general, as meaningless. And he is sure that from 'the standpoint of a higher socio-economic formation, the private property of particular individuals in the earth will appear just as absurd as the private property of one man in other men' (p.911). We are merely the earth's 'possessors, its beneficiaries, and have to bequeath it in an improved state to succeeding generations' (ibid). Considering the ecological devastation modern capitalism has wrought on the world, Marx's sensible words have gone unheeded. Anyhow, Marx finishes Part Six with a chapter on the genesis of capitalist ground-rent, a chapter in which he covers labour rent, rent in kind, money rent, and share-cropping and small-scale peasant ownership. It is a brief and welcome respite after the theoretical density of the preceding chapters.
'Part Seven: The Revenue and Their Sources', and the conclusion of the book, kicks off with 'Chapter 48: The Trinity Formula'. Here, Marx connects capital-profit (profit of enterprise + interest), land-ground-rent, and labour-wages, and describes how this 'trinity form holds in itself all the mysteries of the social production process' (p.953). He also recaps and reiterates that 'capital is not a thing, it is a definite social relation of production pertaining to a particular historical social formation' (ibid). The next chapter, 'On the Analysis of the Production Process', revisits the reproduction schemas of Volume II, while Chapter 50, 'The Illusion Created by Competition', explores how the value created in production (v + s) is divided into wages, profit, and rent. And then, after a chapter on relations of production and relations of distribution, the seriously truncated finale, 'Chapter 52: Classes', which concludes with these words: '(At this point the manuscript breaks off. – F.E.)' (p.1026).
So there we have it, the end of Marx's magnum opus (although there is a fourth volume, Theories of Surplus-Value, compiled by Karl Kautsky after Engels's death and first published in 1905-10). Volume III is a confusing book, but an essential one all the same, although its unfinished nature ensures that there are more questions posed than answers given. Those looking for a single definition of why crises occur won't find it here. Instead, they will find their potentiality cropping up throughout Marx's numerous investigations. And Marx will openly contradict himself at various points, which is another foible we have to accept (after all, he was human). For instance, at one point Marx echoes Volume II in saying that the 'ultimate reason for all real crises...remains the poverty and restricted consumption of the masses' (p.615) who cannot afford to buy the products they make; at other times, though, Marx will say that the credit system prompts all crises. With this in mind, then, it's best to reject any single defining factor in the outbreak of crises – it's never that simple!
Despite the horrors Marx describes, a real sense of optimism runs through Volume III, most of which was written before the dry and technical explorations undertaken in Volume II. At various points in the book, Marx will highlight the transient nature of the capitalist mode of production, which corresponds to 'a specific and limited epoch in the development of the material conditions of production' (p.368), and one which 'is becoming [increasingly] senile' (p.371). Well, it's still here and going strong, despite its occasional wobbles. But the idea of revolution is only a secondary element in all three volumes of Capital, because the main thrust of Marx's argument is the destitution capitalism pushes on the proletariat. As Marx says in Volume III, 'for all its stinginess, capitalist production is thoroughly wasteful with human material' (p.180). And, contrary to what most people think, Marx recoiled from the senseless and wasteful violence advocated by some of his followers, which moved away from the humanitarian aims underpinning his work. Having seen the strife revolution caused, Marx began to move towards a reformist approach, as this was the only one he felt could deliver a society in which the 'free development of each is the condition for the free development of all' (to quote the Communist Manifesto). But regardless of where you stand in relation to Marx, or the arguments concerning reform or revolt, his work is an essential undertaking, because it is one which forever exposes the exploitation of the proletariat in the hunt for surplus-value. And that, whatever your ideological inclinations, is his enduring contribution to the world.