Value, price, and profit

Preface

The circumstances under which this paper was read are narrated at the beginning of

I the work. The paper was never published 'during the lifetime of Marx. It was found

i amongst his papers after the death of En-

' gels.

Among many other characteristics of | Marx, this paper shows two^ especially. These are his patient willingness tcfmSfce" the meaning of his ideas plain to the humblest student, and the extraordinary clear- I ness of those ideas.

I In a partial sense the present volume is an i epito me of the first volume of Capital. [WmL { - than one of us have attempted to anaiP^e and simplify that volume, with not too ; much success perhaps. In fact, a witty friend and commentator has suggested that what is now required is an explanation by i. Marx of our explanations of him.

£1

PREFACE

I am often asked what is the best succession of books for the student to acquire the fundamental principles of Socialism. The question is a difficult one to answer. But, by way of suggestion, one might say, first, Engels' Socialism, Utopian and Scientific, then the present work, the first volume of Capital, and the Student's Marx.

My small part in the preparation of this work has been reading the manuscript, making a few suggestions as to English forms of expression, dividing the work up into chapters and naming the chapters, and revising the proofs for press. All the rest, and by far the most important part, of the work has been done by her whose name appears on the title page.

The present volume has already been translated into German.

Edward Aveling.

Contents

CHAP. PAGE

Preliminary 5

I. Production and Wages 9

II

The address Citizen Weston read to us might have been compressed into a n utshel l

All his reasoning amounted to this: If the working class forces the capitalist class to pay five shillings instead of four shillings in the shape of money wages, the capitalist will return in the shape of commodities four shillings' worth instead of five shillings' worth. The working class would have to pay five shillings for what, before the rise of wages, they bought with four shillings. But why is this the case? Why does the capitalist only return four shillings' worth for five shillings? Because the amount of wages is fixed. But why is it fixed at four shillings' worth of commodities ? Why not at three, or two, or any other sum ? If the limit of the amount of wages is settled by an economic law, independent alike of the

I will of the capitalist and the will of the working man, the first thing Citizen Weston had to do was to state that law and prove it. He ought then, moreover, to have proved that the amount of wages actually paid at every given moment always corresponds exactly to the necessary amount of wages, and never deviates from it. If, on the other hand, the given limit of the amount of wages is founded on the mere will of the capitalist, or the limits of his avarice, it is an arbitrary limit. There is nothing necessary in it. It may be changed by the will of the capitalist, and may, therefore, be changed against his will.

Citizen Weston illustrated his theory by telling you that when a bowl contains a certain quantity of soup, to be eaten by a cer- , tain number of persons, an increase in the broadness of the spoons would not produce an increase in the amount of soup. He ta must allow me to find this illustration rather spoonyj It reminded me somewhat of the ; simile employed by Menenius Agrippa. ' When the Roman plebeians struck against : the Roman patricians, the patrician Agrippa l6 VALUE, PRICE AND PROFIT

told them that the patrician belly fed the plebeian member^ of the body politic. Agrippa failed td show that you feed the members of one man by filling the belly of another. Citizen Weston, on his part, has forgotten that the bowl from which the workmen eat is filled with the whole produce of the national labor, and that what prevents them fetching more out of it is neither the narrowness of the bowl nor the scantiness of its contents, but only the smallness of their spoons.

By what contrivance is the capitalist enabled to return four shillings' worth for five shillings ? By raising the price of the commodity he sells. Now, does a rise and more generally a change in the prices of commodities, do the prices of commodities themselves, depend on the mere will of the capitalist ? Or are, on the contrary, certain circumstances wanted to give effect to that will? If not, the ups and downs, the incessant fluctuations of market prices, become an insoluble riddl e. \

As we suppose that no change whatever ; has taken place either in the productive powers of labor, or in the amount of c apit al and labor employ ed, or in tne value ot fEejn^jjey wherein the values of products are estimated, but only a change in the rate of wages, how could that rise of wages affect the prices of commodities? Only by affecting the actual proportion between the demand for, and the supply of, these commodities.

It is perfectly true that, considered as a whole, the working class spends, and must spend, its income upon necessaries. A gen-, eral rise in the rate of wages would, therefore, produce a rise in the demand for, and consequently in the market prices of, necessaries. The capitalists who produce these necessaries would be compensated for the risen wages by the rising market prices of their commodities. But how with the other capitalists who do not produce necessaries? And you must not fancy them a small body. If you consider that two-thirds of the national produce are consumed by one-fifth of the population — a member of the House of Commons stated it recently to be but oneseventh of the population — you will under-

Di l8 VALUE, PRICE AND PROFIT

stand what an immense proportion of the national produce must be produced in the shape of luxuries, or be exchanged for luxuries, and what an immense amount of the necessaries themselves must be wasted upon flunkeys^ horses, cats, and so forth, a waste we know' from experience to become always 'much limitedftvitti the rising prices of necessaries. ■ 4 j

Well, what would be the position of those capitalists who do not produce necessaries? For the fall in ttye rate of profit, consequent upon the general rise of wages, they could not compensate themselves by a rise \n the price of their commodities, because ffie demand for those commodities would not have increased. Their income would have decreased, and from this decreased income they would have to pay more for the same amount of higher-priced necessaries. But this would not be all. As their income had diminjshecf they would have less to spend upon ' luxuries, and therefore their mutual demand for their respective commodities would, diminish. Consequent upon this diminished demand the prices of theiiv commodities would fall. In these branches of industry, therefore, the rate of profit would fall, not only in simple proportion to the general rise in the rate of wages, but in the ! co mpound ratio of the general rise of 4ages, the rise in the prices of necessarie^ and the fall in the prices of luxuries. im

What would be the consilience of this difference in the rates oftp'ro&t for capitals employed in the different branches of industry? Why, the consequence that generally obtains whenever, frfjm whatever reason, the average rate of profit comes to differ in the different spheres of production. Capital and labor would be transferred from the less remunerative to the more remunerative branches; and this process of transfer would go on until the supply in the one department of industry would have risen proportionately to the increased demand,* and would have sunk in the other departments according to the decreased demand. This change effected, the general rate^gy profit would again be equalized in the different branches. As the whole derangement orig- >^ inall} arose from a mere change in the pro-

I portion of the demand for, and supply of, different commodities, the cause ceasing, / 1 the effect would cease, and prices would re- ; turn to their former level and equilibrium. Instead of being limited to some branches of industry, the fall in the rate of profit consequent upon the rise of wages would have become general. According to our supposition, there would have taken place no change in the productive powers of labor, nor in the aggregate amount of production, but that given amount of production would have changed its form. A greater part of the produce would exist in the shape of nec- - essaries, a lesser part in the shape of luxuries, or what comes to the same, a lesser part would be exchanged for foreign luxuries, and be consumed in its original form, or, what again comes to the same, a greater part of the native produce would be exchanged for foreign necessaries instead of for luxuries. The general rise in the rate of wages would, therefore, after a temporary disturbance of market prices, only result in a general fall of the rate of profit without any permanent change in the prices t> of commodities. {

If I am told that in the previous argument I assume the whole surplus wages to be spent upon necessaries, I answer that I have made the supposition most advantageous to the opinion of Citizen Weston. If the surplus wages were spent upon articles formerly not entering into the consumption of the working men, the real increase of their purchasing power would need no proof. Being, however, only derived from an advance of wages, tb?t Urease of their purchasing power must exactly corrcspond to the decrease of the purchasing power of the capitalists. The aggregate demand for commodities would, therefore, not increase, but the constituent parts of that demand would change. Th*> increasing demand on the one side would be counterbalanced by the decreasing demand on the other side. Thus the aggregate demand remaining stationary, no change whatever could take place in the market prices of commodities.

You arrive, therefore, at this dilemma: Either the surplus wages are equally spent upon all articles of consumption — then the expansion of demand on the part of the working class must be compensated by the contraction of demand on the part of the capitalist class — or the surplus wages are only spent upon some articles whose market prices will temporarily rise. Then the consequent rise in the rate of profit in some, and the consequent fall in the rate of profit in other branches of industry will produce a change in the distribution of capital and labor, going on until the supply is brought up to the increased demand in the one department of industry, and brought down to the diminished demand in the other departments of industry. On the one supposition there will occur no change in/ the prices of commodities. On the other supposition, after some fluctuations of market prices, the exchangeable values of commodities will subside to the former level. On both suppositions the general rise in the rate of wages will ultimately result in nothingelse but a general fall in the rate of profit.

To stir up your powers of imagination Citizen Weston requested you to think of the difficulties which a general rise of English agricultural wages from nine shillings to eighteen shillings would produce. Think, he exclaimed, of the immense rise in the demand for necessaries, and the consequent fearful rise in their prices ! Now, all of you know that the average wages of the American agricultural laborer amount to more than double that of the English agricultural laborer, although the prices of agricultural produce are lower in the United States than in the United Kingdom, although the general relations of capital and labor obtain in the United States the same as in England, and although the annual amount of production is much smaller in the United States than in England. Why, then, does our friend ring this alarum bell ? Simply to shift the real question before us. A sudden rise of wages from nine shillings to eighteen shillings would be a sudden rise to the amount of 100 per cent. Now, we are not at all discussing the question whether the general rate of wages in England could be suddenly increased by 100 per cent. We have nothing at all to do with the magnitude of the rise, which in every practical instance must depend on, and be suited to, given circumstances. We have only to inquire how a general rise in the rate of wages, even if restricted to one per cent., will act.

Dismissing friend Weston's fancy rise of 100 per cent., I propose calling your attention to the real rise of wages that took place in Great Britain from 1849 to 1859.

You are all aware of the Ten Hours Bill, or rather Ten-and-a-half Hours Bill, introduced since 1848. This was one of the greatest economic changes we hav e witnessed. It was a sudden and compulsory rise of wages, not in some local trades, but in the leading industrial branches by which England sways the markets of the world. It was a rise of wages under circumstances singularly unpropitious. Dr. Ure, Professor Senior, and all the other official economical mouthpieces of the^ middle class, proved, and I must say upon much stronger grounds than those of our friend Weston, that it would sound the death-knoll of English industry. They proved that it not only amounted to a simple rise of wages, but to a rise of wages initiated by, and based upon, a diminution of the quantity of labor employed. They asserted that the twelfth hour you wanted to take from the capitalist was exactly the only hour from which he derived his profit. They threatened a decrease of accumulation, rise of prices, loss of markets, stinting of production, consequent reaction upon wages, ultimate ruin. In fact, they declared Maximilian Robespierre's Maximum Laws to be a small affair compared to it ; and they were right in a certain sense. Well, what was the result? A rise in the money wages of the factory operatives, despite the curtailing of the working day, a great increase in the number of factory hands employed, a continuous fall in the prices of their products, a marvelous development in the productive powers of their labor, an unheard-of progressive expansion of the markets for their commodities. In Manchester, at the meeting, in i860, of the Society for the Advancement of Science, I myself heard Mr. Newman con-

Di fess that he, Dr. Ure, Senior, and all other official propounders of economic science had been wrong, while the instinct of the people had been right. I mention Mr. W. Newman, not Professor Francis Newman, because he occupies an eminent position in economic science, as the contributor to, and editor of, Mr. Thomas Tooke's History of Prices, that magnificent work which traces the history of prices from 1793 to 1856. If our friend Weston's fixed idea of a fixed amount of wages, a fixed amount of production, a fixed degree of the productive power of labor, a fixed and permanent will of the capitalists, and all his other fixedness and finality were correct, Professor Senior's wofifjul forebodings would have been right, and Robert Owen, who already in 18 16 pro- ] claimed a general limitation of the working day the first preparatory step to the emancipation of the working class, and actually in the teeth of the general prejudice inaugurated it on his own hook in his cotton factory at New Lanark, would have been wrong.

In the very same period during which the

PRODUCTION, WAGES, PROFITS 27 X introduction of the Ten Hours Bill, and the rise of wages consequent upon it, occurred, there took place in Great Britain, for reasons which it would be out of place to enumerate here, a general rise in agricultural wages.

Although it is not required for my immediate purpose, in order not to mislead you, I shall make some preliminary remarks.

If a man got two shillings weekly wages, and if his wages rose to four shillings, the rate of wages would have risen by 100 per cent. This would seem a very magnificent thing if expressed as a rise in the rate of wages, although the actual amount of wages, four shillings weekly, would still remain a wretchedl y small, a starvation pittance. You must not, therefore, allow yourselves to be carried away by the high-sounding per cents, in the rate of wages. You must always ask, What was the original amount?

Moreover, you will understand, that if there were ten men receiving each 2s. per week, five men receiving each $s., and five men receiving us. weekly, the twenty men together would receive ioos., or £5. weekly.

If then a rise, say by 20 per cent-, upon the aggregate sum of their weekly wages took place, there would be an advance from £5 to £6. Taking the average, we might say that the general rate of wages had risen by 20 per cent., although, in fact, the wages of the ten men had remained stationary, the wages of the one lot of five men had risen from 5^. to 6s. only, and the wages of the other lot of five men from 55s. to 70s. One half of the men would not have improved at all their position, one quarter would have improved it in an imperceptible degree, and only one quarter would have bettered it really. Still, reckoning by the average, the total amount of the wages of those twenty men would have increased by 20 per cent., and as far as the aggregate capital that employs them, and the prices of the commodities they produce, are concerned, it would be exactly the same as if all of them had equally shared in the average rise of wages. In the case of agricultural labor, the standard wages being very different in the different counties of England and Scotland, the rise affected them very unequally.

Lastly, during the period when that rise of wages took place counteracting influences were at work, such as the new taxes consequent upon the Russian war, the extensive demolition of the dwelling-houses of the agricultural laborers, and so forth.

Having premised so much, I proceed to state that from 1849 to x 859 there took place a rise of about 40 per cent, in the average rate of the agricultural wages of Great Britain. I could give you ample details in proof of my assertion, but for the present purpose think it sufficient to refer you to the conscientious and critical paper read in i860 by the late Mr. John C. Morton at the London Society of Arts on " The Forces used in Agriculture.' ' Mr. Morton gives the returns, from bills and other authentic documents, which he had collected from about one hundred farmers, residing in twelve Scotch and thirty-five English counties.

According to our friend Weston's opinion, and taken together with the simultaneous rise in the wages of the factory operatives, there ought to have occurred a tremendous rise in the prices of ^agricultural produce during the period 1849 to 1859. But what is the fact? Despite the Russian war, and the consecutive unfavorable harvests from 1854 to 1856, the average price of wheat, which is the leading agricultural produce of England, fell from about £3 per quarter for the years 1838 to 1848 to about £2 I0£. per quarter for the years 1849 to 1859. This constitutes a fall in the price of wheat of more than 16 per cent, simultaneously with an average rise of agricultural wages of 40 per cent. During the same period, if we compare its end with its beginning, 1859 with 1849, there was a decrease of official pauperism from 934,419 to 860,470, the difference being 73,949; a very small decrease, I grant, and which in the following years was again lost, but still a decrease.

It might be said that, consequent ppon the abolition of the Corn Laws, the import of foreign com was more than doubled during the period from 1849 to 1 %S9> as compared with the period from 1838 to 1848. And what of that? From Citizen Weston's standpoint one would have expected that this sudden, immense, and continuously increasing demand upon foreign markets must have sent up the prices of agricultural produce there to a frightful height, the effect of increased demand remaining the same, whether it comes from without or from within. What was the fact? Apart from some years of failing harvests, during all that period the ruinous fall in the price of corn formed a standing theme of declamation in France; the Americans were again and again compelled to burn their surplus of produce; and Russia, if we are to believe Mr. Urquhart, prompte d the Civil War in the United States because her agricultural exports were crippled by the Yankee competition in the markets of Europe.

Reduced to its abstract form, Citizen Weston's argument would come to this: Every rise in demand occurs always on the basis of a given amount of production. It can, therefore, never increase the supply of the articles demanded, but can only enhance their money prices. Now the most common observation shows that an increased demand will, in some instances, leave the market prices of commodities altogether unchanged, and will, in other instances, cause a temporary rise of market prices followed by an increased supply, followed by a reduction of the prices to their original level, and in many cases below their original level. Whether the rise of demand springs from surplus wages, or from any other cause, does not at all change the conditions of the problem. From Citizen Weston's standpoint the general phenomenon was as difficult to explain as the phenomenon occurring under the exceptional circumstances of a rise of wages. His argument had, therefore, no peculiar bearing whatever upon the subject we treat. It only expressed his perplexity at accounting for the laws by which an increase of demand produces an increase of supply, instead of an ultimate rise of market prices.

V

III

On the second day of the debate our friend Weston clothed his old assertions in new forms. He said : Consequent upom a general rise in money wages, more currency will be wanted to pay the same wages. The currency being fixed, how can you pay with this fixed currency increased money wages? First the difficulty arose from the fixed amount of commodities accruing to the working man despite his increase of money wages; now it arises from the increased money wages, despite the fixed amount of commodities. Of course, if you reject his original dogma, his secondary grievance will disappear.

However, I shall show that this currency question has nothing at all to do with the subject before us.

In your country the mechanism of payments is much more perfected than in any other country of Europe. Thanks to the extent and concentration of the banking system, much less currency is wanted to circulate the same amount of values, and to transact the same or a greater amount of business. For example, as far as wages are concerned, the English factory operative pays his wages weekly to the shopkeeper, who sends them weekly to the banker, who returns them weekly to the manufacturer, who again pays them away to his working men, and so forth. By this contrivance the yearly wages of an operative, say of £52, may be paid by one single sovereign turning round every week in the same circle. Even in England the mechanism is less perfect than in Scotland, and is not everywhere equally perfect; and therefore we find, for example, that in some agricultural districts, as compared with the mere factory districts, much more currency is wanted to circulate a much smaller amount of values.

If you cross the Channel you will find that the money wages are much lower than in England, but that they are circulated in

Germany, Italy, Switzerland, and France by a much larger amount of currency. The same sovereign will not be so quickly intercepted by the banker or returned to the industrial capitalist ; and, therefore, instead of one sovereign circulating £52 yearly, you want, perhaps, three sovereigns to circulate yearly wages to the amount of £25. Thus, by comparing continental countries with England, you will see at once that low money [ wages may require a much larger currency for their circulation than high money wages, and that this is, in fact, a merely technical point, quite foreign to our subject. «

According to the best calculations I know, the yearly income of the working class of this country may be estimated at £250,000,- 000. This immense sum is circulated by about three million pounds. Suppose a rise of wages of fifty per cent, to take place. Then, instead of three millions of currency, four and a half millions would be wanted. As a very considerable part of the workingman's daily expenses is laid out in silver and copper, that is to say, in mere token s, whose relative value to gold is arbitrarily fixed by law, like that of inconvertible money paper, a rise of money wages by fifty per cent, would, in the extreme case, require an additional circulation of sovereigns, say to the amount of one million. One million, now dorman t, in the shape of bullion or coin, in the cellars of the Bank of England, or of private bankers, would circulate. -But even the trifling expense resulting from the additional minting or the additional wear and tear of that million might be spared, and would actually be spared, if any frictioiT should arise from the want of the additional currency. All of you know that the currency of this country is divided into two great departments. One sort, supplied by bank-notes of different descriptions, is used in the transactions between dealers and dealers, and the larger payments from consumers to dealers, while another sort of currency, metallic coin, circulates in the retail trade. Although distinct, these two sorts of currency interwork with each other. Thus gold coin, to a very great extent, circulates even in larger payments for all the odd sums under £5. If to-morrow £4 notes, or £3 notes, or £2 notes were issued, the gold filling these channels of circulation would at once be driven out of them, and flow into those channels where they would be needed from the increase of money wages. Thus the additional million required by an advance of wages by fifty per cent, would be supplied without the addition of one single sovereign. The same effect might be produced, without one additional bank-note, by an additional bill circulation, as was the case in Lancashire for a very considerable time.

If a general rise in the rate of wages, for example, of 100 per cent., as Citizen Weston supposed it to take place in agricultural wages, would produce a great rise in the prices of necessaries, and, according to his views, require an additional amount of currency not to be procured, a general fall in wages must produce the same effect, on the same scale, in an opposite direction. Well ! All of you know that the years 1858 to i860 were the most prosperous years for the cotton industry, and that peculiarly the year i860 stands in that respect unrivaled in the

Di annals of commerce, while at the same time all other branches of industry were most flourishing. The wages of the cotton operatives and of all the other working men connected with their trade stood, in i860, higher than ever before. The American crisis came, and those aggregate wages were suddenly reduced to about one-fourth of their former amount. This would have been in the opposite direction a rise of 400 per cent. If wages rise from five to twenty, we say that they rise by 400 per cent.; if they fall from twenty to five, we say that . they fall by seventy-five per cent.; but the amount of rise in the one and the amount of fall in the other case would be the same, namely, fifteen shillings. This, then, was a sudden change in the rate of wages unprecedented, and at the same time extending % over a number of operatives which, if we count all the operatives not only directly engaged in but indirectly dependent upon the cotton trade, was larger by one-half than the number of agricultural laborers. Did the price of wheat fall? It rose from the annual average of 47s. Sd. per quarter dur-

J ing the three years of 1858-1860 to the annual average of 55$. lod. per quarter during the three years 1861-1863. As to the currency, there were coined in the mint in 1861 £8,673,232, against £3,378,792 in i860. That is to say, there were coined £5,294,440 more in 1861 than in i860. It is true the bank-note circulation was in 1861 less by £1,319,000 than in i860. Take this off. , There remains still an overplus of currency for the year 1861, as compared with the prosperity year, i860, to the amount of £3,975,440, or about £4,000,000; but the bullion reserve in the Bank of England had simultaneously decreased, not quite to the same, but in an approximating proportion.

Compare the year 1862 with 1842. Apart from the immense increase in the value and amount of commodities circulated, in 1862 the capital paid in regular transactions for shares, loans, etc., for the railways in England and Wales amounted alone to £320,- 000,000, a sum that would have appeared fabulous in 1842. Still, the aggregate amounts in currency in 1862 and 1842 were pretty nearly equal, and generally you will find a tendency to a progressive diminution of currency in the face of an enormously increasing value, not only of commodities, but of monetary transactions generally. From our friend Weston's standpoint this is an unsolvable riddle.