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Since commercial capital does not itself produce any surplus-value, it is clear that the surplus-value that accrues to it in the form of the average profit forms a portion of the surplus-value produced by the productive capital as a whole. The question now is this: How does commercial capital attract the part of the surplus-value produced by productive capital that falls to its share? ...

It is clear that the merchant can obtain his profit only from the price of the commodities he sells, and also that this profit which he makes on the sale of his commodities must be equal to the difference between his purchase price and his sale price; it must be equal to the excess of the latter over the former. (C.III. 395-96; emphasis added)

How then are the purchase price and the selling price of commercial capital determined? Marx first considers the simple case in which there are no additional costs of circulation beyond that necessary to purchase the commodities. The general rate of profit (R') is now determined as the ratio of the predetermined total amount of surplus-value to the sum of industrial capital (Cp) and commercial capital (Cc), not just to the industrial capital as before:

(3) R' = S / (Cp +Cc) < R = S / C

Therefore, the general rate of profit is less than what it was in the absence of commercial capital.

Commercial capital's "wholesale" price (WP) (or industrial capital's selling price) is then determined as follows (considering both the total industrial capital and the total commercial capital, rather than individual capitals):

(4) WP = Kp + R'(Cp)

where Kp is the cost of production (the sum of variable capital and constant capital consumed). Since R' < R, the average profit added to the costs of production by industrial capital is less than in the absence of commercial capital. In this way, industrial capital appropriates a smaller share of the total surplus-value.

The remainder of the total surplus-value is then received by commercial capital by adding the average profit to its buying price to determine its selling or "retail" price (RP):

(5) RP = WP + R'(Cc)

This then is Marx's explanation of how commercial capital receives a profit even though it produces no surplus-value. It can easily be shown that the sum of industrial profit and commercial profit determined in this way is equal to the predetermined total amount of surplus-value, and that the "retail" price is equal to the total price of commodities in the earlier case of assuming no commercial capital. Marx presented a numerical example of this method of determination on p. 398 of Volume 3. (Marx gave a similar example in a 1868 letter to Engels, which will be discussed in Section 6 below; see SC. 194-95.)

Marx did not clearly present all the details of the more complicated case with additional costs of circulation (Kc), but the general principles just discussed still apply, with the following modifications: (1) The general rate of profit is even lower because of the greater commercial capital which now includes (Kc). (2) Kc is subtracted from the "wholesale" price and added to the "retail" price, so that the equations for determining these prices become:

(6) WP = Kp + R'(Cp ) - Kc

(7) RP = WP + R'(Cc) + Kc

In this way, commercial capital is able both to recover its additional costs of circulation and to collect the average rate of profit out of the surplus-value produced by industrial capital. Throughout this analysis, Marx assumed that the total amount of surplus-value is predetermined and is not affected by this division into industrial profit and commercial profit. In Marx's examples, the total amount of surplus-value is assumed to be a given $180.x

In Volume 2 of Capital, Chapter 6 (“The Costs of Circulation”), Marx stated that the “general law” for these costs of circulation is that they are recovered out of the surplus-value produced by productive capital, which is taken as given in this analysis of commercial profit.

The general law is that all circulation costs that arise simply from a change in the form of the commodity cannot add any value to it. They are simply costs involved in realizing the value or transferring it from one form to another. The capital expended in these costs (including the labor it commands) belongs to the faux frais of capitalist production. The replacement of these costs must come from the surplus product, and from the standpoint of the capitalist class as a whole it forms a deduction of surplus- value ... (C.II. 225-26; emphasis added)
c. Interest (Part 5)xi

According to Marx's theory of interest, interest is simply a part of the total surplus-value which the "functioning" capital (either industrial capital or commercial capital) has to pay to the lenders of capital for the use of the lenders' capital. Again, the total amount of surplus-value is predetermined and taken as given and not affected by its division into "profit of enterprise" and interest.

Interest ... is ... nothing but a part of the profit, i.e. the surplus-value, which the functioning capitalist, whether industrialist or merchant, must pay to the owner and lender of capital is so far as the capital he uses is not his own but borrowed.

(C.III. 493)

Where a given whole such as profit is to be divided into two, the first thing that matters is of course the size of the whole to be divided ... And the circumstances that determine the magnitude of the profit to be divided, the value produce of unpaid labor, are very different from those that determine its distribution among these two types of capitalist ... (C.III. 482; emphasis added)

Marx argued that there are no general, systematic laws that determine the rate of interest, as there is with the rate of profit. Therefore, there are no general laws that determine the relative shares of "profit of enterprise" and interest in the total surplus-value. The rate of interest is instead determined by the supply of and demand for capital as borrowed funds. For our purposes, the crucial point is that the maximum rate of interest is the rate of profit, which is determined prior to and independent of the division of the total surplus-value into "profit of enterprise" and interest.

With the division into interest and profit of enterprise, the average profit itself sets the limit for the two together. It supplies the given amount of value they have to share between them, and this is all they have to share. The specific ratio of this division is accidental here, i.e. it is determined exclusively by competition... (C.III. 1001; emphasis added)
d. Rent (Part 6)xii.

Marx began his analysis of rent by clearly stating that we was not concerned with a complete analysis of landed property, but only with rent as a form of the distribution of surplus-value.

The analysis of landed property in its various historical forms lies outside the scope of the present work. We are concerned with it only in so far as a portion of the surplus-value that capital produces falls to the landowner. (C.III. 751; emphasis added)

Marx posed the question of differential rent at the beginning of Chapter 38, in the following way, which also clearly indicates that rent is analyzed as a part of the total surplus-value, which is predetermined and taken as given.

In our analysis of ground-rent, we intend to proceed first of all from the assumption that products that pay a rent of this kind - which means that a part of surplus-value ... is reducible to rent - are sold like all other commodities at their prices of production... The question then arises: How a ground-rent can develop on this assumption, i.e. how a portion of profit can be transformed into ground-rent ...(C.III. 779; emphasis added)

Marx assumed that agriculture is organized on a capitalist basis, and that capital invested in agriculture receives the same average rate of profit as all other industries. However, agriculture is unique in that productivity differentials of different lands are due in part to unequal natural fertilities, which cannot be eliminated by competition and the transfer of capital. As a result, the price of production of agricultural goods is determined by the labor-time requirements on the least fertile land, rather than the labor-time requirements on the land of average fertility. The greater quantity of goods produced by the same amount of labor on the more fertile lands will sell at the same price as goods produced on the least fertile land. Therefore, the goods produced on the more fertile land will contain a sustainable "surplus profit", i.e. a profit over and above the average rate of profit. This surplus profit is transformed into differential rent that must be paid to landlords because of the landlords' private ownership of the land and thus their monopolization of the benefits of the greater natural fertility.

In Chapter 45, Marx also explained in greater detail the possibility of absolute rent on the least fertile land. Marx argued that absolute rent (which arises even though the price of agricultural goods is not greater than their value) is possible because the composition of capital in agriculture may be less than the average composition for the total economy, in which case the value of agricultural goods will be greater their price of production. Hence the actual price of agricultural goods may rise above their price of production without necessarily being greater than their value, and this excess of the actual price over the price of production is the source of absolute rent on the least fertile land. Because competition among capitalists tends to eliminate a higher than average rate of profit on capital in agriculture, this extra surplus-value accruing to agriculture is appropriated by landlords as absolute rent. Once again, it is clear that rent is a part of a predetermined total amount of surplus-value.xiii

In any case, absolute rent, arising from the excess value over and above the price of production, is simply a part of the agricultural surplus-value, the transformation of this surplus-value into rent, its seizure by the landowner; just as differential rent arises form the transformation of surplus profit into rent, its seizure by landed property, at the governing price of production. (C.III. 898)

e. Revenue and its sources (Part 7)xiv

Part 7 is a kind of summary of Marx's theory of the distribution of surplus-value in Volume 3 which has not received the attention it deserves. The main emphasis in this part is on the fundamental premise that the total amount of surplus-value is determined prior to its division into individual parts. A few passages, among many similar passages in Part 7, include:

Profit (profit of enterprise plus interest) and rent are nothing more than characteristic forms assumed by particular portions of the surplus-value in commodities. The size of the surplus-value sets a quantitative limit for the parts it can be broken down into. (C.III. 971; emphasis added)

The sum of average profit plus ground-rent can never be greater than the quantity of which these are parts, and this is already given before the division. (C.III. 972; emphasis added)

The value freshly added each year by new labor ... can be separated out and resolved into the different revenue forms of wages, profit, and rent; this in no way alters the limits of the value itself, the sum of the value that is divided between these different categories. In the same way, a change in the ratio of these individual portion among themselves cannot affect their sum, this given sum of value... What is given first, therefore, is the mass of commodity values to be divided into wages, profit, and rent ... We have thus an absolute limit for the value component that forms surplus-value and can be broken down into profit and ground-rent; this is determined by the excess of the unpaid portion of the working day over its paid portion, i.e. by the value component of the total product in which this surplus labor is realized. (C.III. 998-99; emphasis added)

Marx also contrasted his premise with essentially the opposite premise of the vulgar economists, according to which the different forms of revenue - wages, profit, and rent - are themselves independent "sources" of value, rather than being parts of a predetermined total value. Marx called this opposite view the "Trinity Formula" or the "illusions created by competition".

Thus if the portion of commodity value representing labor freshly added ... breaks down into different portions, which assume mutually independent shapes in the form of revenues, this does not in any way mean that wages, profit, and ground-rent are now to be considered as the constituent elements, with the governing price of commodities ... itself arising from their combination or sum ... In actual fact commodity value is the quantitative premise, the sum total value of wages, profit and rent, whatever their relative mutual magnitudes might be. In the false conception considered here, however, wages, profit and rent are three independent value magnitudes, whose total produces, limits and determines the magnitude of commodity value. (C.III. 1002; emphasis added)

4. Volume 1 of Capital

In the final draft of Volume 1 of Capital, which was written in 1866-67, there are a number of anticipations of Marx's theory of the distribution of surplus-value in Volume 3, which provide further evidence of Marx's method of first determining the total amount of surplus-value and then analyzing the division of this total amount into individual parts. The main anticipations are: (1) in Chapter 5 (pp. 266-67), a preview of Marx's theories of merchant profit and interest as parts of a predetermined total amount of surplus-value; (2) in Chapter 10, the theory of the determination of the length of the working day by the class struggle between capitalists and workers; (3) in Chapter 11 (pp. 421-22), a preview of Marx's theory of equal rates of profit and prices of production; (4) in Chapter 12, the derivation of technological change as an inherent tendency of capital in general; and (5) in the Introduction to Part 7, a preview of Volume 3 as a theory of the distribution of surplus-value into its various fragments. Because of space limitation, it will not be possible to discuss these anticipations in detail (see Moseley 1995 for a further discussion). One example will have to suffice from the Introduction to Part 7:

The capitalist who produces surplus-value, i.e. who extracts unpaid labor directly from the workers and fixes it in commodities, is admittedly the first appropriator of this surplus-value, but he is by no means its ultimate proprietor. He has to share it afterwards with capitalists who fulfill other functions in social production taken as a whole, with the owner of the land, and with yet other people. Surplus-value is therefore split up into various parts. Its fragments fall to various categories of person, and take on various mutually independent forms, such as profit, interest, gains made through trade, ground rent, etc. We shall be able to deal with these modified forms of surplus-value only in Volume 3. (C.I. 709; emphasis added)

The break-up of surplus-value into various fragments does not affect either its nature or the conditions under which it becomes an element of accumulation. (C.I. 710; emphasis added)
5. Letters to Engels, 1867-68

Further evidence of Marx's method of the prior determination of the total amount of surplus-value is provided by three important letters to Engels written in 1867-68, i.e. soon after the publication of the first edition of Volume 1 of Capital. In August 1867, Marx wrote that one of the two best points of his book was the determination of the total amount of surplus-value prior to the analysis of the particular forms of surplus-value.

The best points in my book are: ... 2) the treatment of surplus-value independently of its particular forms. This will be seen especially in the second volume. [Marx's plan at the time was to publish what we know as both Volume 2 and 3 in the "second volume". FM] The treatment of the particular forms by classical economy, which always mixes them up with the general form is a regular hash. (SC. 180)xv

Marx repeated the same point in a letter in January 1868, in which he stated that his treatment of surplus-value was one of the "three fundamentally new elements" of his book:

1) That in contrast to all former political economy, which from the very outset treats the different fragments of surplus-value with their fixed forms of rent, profit, and

interest as already given, I first deal with the general form of surplus-value, in which all these fragments are still undifferentiated - in solution, as it were. (SC. 186)

Finally, in an important letter in April 1868, Marx outlined for Engels the contents of Volume 3 of Capital. Excerpts from this letter clearly indicate that the main subject of Volume 3 is the division of surplus-value into its component parts:

In Book III, we come to the transformation of surplus-value into its different forms and separate component parts.

I. Profit is for us first of all only another name or another category for surplus-value.

II. ... A mean or general rate of profit is formed by competition. This rate of profit, expressed in absolute terms, can be nothing else than the surplus-value produced (annually) by the capitalist class as a whole in relation to the total capital advanced by society as a whole... (T)he mass of capital belonging to each sphere of production receives an aliquot part of the total surplus-value proportionate to the part of the total social capital which it constitutes ... But this means that the prices of commodities must deviate from their values... The price thus equalized, which distributes the social surplus equally among the individual capitals in proportion to their size, is the price of production of commodities ...

III. The tendency of the rate of profit to decline ...

IV. Previously we have only dealt with productive capital. Now modifications occur caused by merchant capital ...

V. Next comes the splitting up of this profit into entrepreneur's profit and interest.

VI. Transformation of surplus profit into rent.

VII. At last we have arrived at the phenomena which serve as the starting point for the vulgar economists: rent originating from the land, profit (interest) from capital, wages from labor. But from our point of view the thing now looks differently. The apparent movement is explained. (SC. 193-95; emphasis added)

7. Conclusion

This paper has presented a considerable amount of textual evidence to support the argument that Marx's theory of the distribution of surplus-value is consistently based throughout the various drafts of Capital on the fundamental premise that the total amount of surplus-value is determined prior to and independent the division of this total amount into individual parts. If anything, Marx became increasingly clear about this premise as he worked out his specific theories of the different forms of revenue into which the total surplus-value is divided.

The burden of interpretation would now seem to be on others - especially the neo-Ricardians - who have heretofore ignored this fundamental premise of Marx's theory, especially in their interpretation of the "transformation problem". I have shown in my earlier paper (Moseley 1993a) that if Marx's theory is correctly interpreted to include this premise, then there is no logical error to his solution to the "transformation problem".

In response, the neo-Ricardians need to show how their interpretation of Marx's theory, and of the "transformation problem" in particular, is consistent with this fundamental premise. Otherwise, it can only be concluded that their criticisms of Marx's theory do not in fact apply to Marx's theory, at least not in terms of Marx's own logical method, but instead apply only to their misguided attempts to interpret Marx's theory in terms of linear production theory.

Burkett, Paul (1991). "Some Comments on 'Capital in General' and the Structure of Marx's

Capital'," Capital and Class, No. 44, Summer, 49-72.

Carchedi, Guglielmo. (1984). "The Logic of Prices as Values," Economy and Society. 13:4,


(1993). ""Marx's Logic of Inquiry and Price Formation," in Moseley (1993b).

Foley, Duncan (1986). Understanding Capital: Marx's Economic Theory. Cambridge MA:

Harvard University Press.

Heinrich, Michael (1989). "Capital in General' and the Structure of Marx's Capital,"

Capital and Class, No. 38, Summer, 63-79.

Marx, Karl (1857-58). Grundrisse. Middlesex, England: Penguin Books, 1973.

(1859). A Contribution to the Critique of Political Economy. New York: International Publishers, 1970.

(1861-63). Theories of Surplus Value, Volume 1. Moscow: Progress Publishers, 1963.

(1861-63). Theories of Surplus Value, Volume 2. Moscow: Progress Publishers, 1968.

(1861-63). Theories of Surplus Value, Volume 3. Moscow: Progress Publishers, 1971

(1867). Capital, Volume 1. New York: Random House, 1977.

(1884). Capital, Volume 2. New York: Random House, 1981.

(1894). Capital, Volume 3. New York: Random House, 1982.

Marx, Karl and Frederick Engels ( ). Selected Correspondence. Moscow: Progress

Publishers, 1975.

(1861-63). Collected Works, Volume 30. New York: International Publishers, 1988.

(1861-63). Collected Works, Volume 31. New York: International Publishers, 1989.

(1861-63). Collected Works, Volume 33. New York: International Publishers, 1992.

(1861-63). Collected Works, Volume 40. New York: International Publishers, 1983.

Mattick, Paul Jr (1981). "Some Aspects of the Value-Price Problem," Economies et

Societes. 15: 6-7, 725-81.

Moseley, Fred (1993a). "Marx's Logical Method and the Transformation Problem,"

in Moseley (1993b).

(1993b) (ed.). Marx's Method in 'Capital': A Reexamination. Atlantic Highlands NJ:

Humanities Press.

(1995). "Capital in General and Marx's Logical Method: A Response to Heinrich's

Critique," Capital and Class, No 56, Summer, 15-48.

Oakley, Allen (1983). The Making of Marx's Critical Theory: A Bibliographical

Analysis. London: Routledge and Kegan Paul.

Rosdolsky, Roman (1968). The Making of Marx's Capital. London: Pluto Press, 1977.

i The other main difference between linear production theory and Marx's theory, and hence the other main error in the neo-Ricardian interpretation of Marx's theory, has to do with the fundamental givens in the two theories. In linear production theory, the fundamental givens are the physical quantities of the technical conditions of production and the real wage. In Marx's theory, the fundamental givens are sums of money which are invested as capital, i.e. the initial M in Marx's "general formula for capital", M - C - M'. This difference is especially relevant to the neo-Ricardian criticism that Marx failed to transform the inputs of constant capital and variable capital from value to prices. I argue that the inputs of constant capital and variable capital are taken as given in money terms and therefore do not need to be "transformed" from values to prices. Others who have made similar arguments are Carchedi 1984 and 1993 and Mattick 1981.

ii The references to Marx in this paper utilize the following shorthand notation:

C.I. Capital, Volume 1.

C.II. Capital, Volume 2.

C.III. Capital, Volume 3.

G. Grundrisse.

MECW.30. Marx-Engels, Collected Works, Volume 30.

MECW.31. Marx-Engels, Collected Works, Volume 31.

MECW.33. Marx-Engels, Collected Works, Volume 33.

MECW.40 Marx-Engels, Collected Works, Volume 40.

SC. Selected Correspondence.

TSV.I. Theories of Surplus-Value, Volume 1.

TSV.II. Theories of Surplus-value, Volume 2.

TSV.III. Theories of Surplus-value, Volume 3.

iii See also G. 435-36.

iv Michael Heinrich (1989) has argued that while working on the 1861-63 manuscript, Marx encountered difficulties in maintaining the distinction between capital in general and competition, and eventually abandoned this distinction. I have argued in Moseley (1995) that Marx encountered no such difficulties while working on this manuscript and that Marx maintained this distinction in the final versions of Capital. The present paper provides further textual support for this critique of Heinrich's argument.

v In the Theories of Surplus-Value, these outlines are located at the end of Volume 1, which is different from their actual location in the 1861-63 manuscript and which is misleading in that it makes it appear as if these outlines were written early in the 1861-63 manuscript and before Marx's long theoretical detour during which he worked out the details of his theory of the distribution of surplus-value and which led to the formulation of these outlines.

vi The "Conversion of profit into average profit," which later became Part 2 of Volume 3 and which is an aspect of the distribution of surplus-value, is discussed before the "law of the fall in the rate of profit", which later became Part 3 of Volume 3 and which is an aspect of capital in general, because of the connection between the "two transformations of surplus-value into profit" discussed in the previous section.

vii Especially Chapter 9.

viii The other main point in my response is that the fundamental gives in Marx’s theory are not the physical quantities of the technical conditions and the real wage, as in the neo-Ricardian interpretation, but are instead sums of money invested as capital; see note 1.

ix Especially Chapter 17.

x The dollar sign is substituted for Marx’s pound sign.

xi Especially Chapters 22 and 23.

xii Especially Chapters 38 and 45.

xiii It should be noted that Marx's theory does not claim that absolute rent is the only source of rent on the least fertile land. The other possible source is monopoly rent, i.e. rent derived from the price of agricultural goods being greater than their value. Therefore, Marx's theory does not require that the composition of capital in agriculture be below average, and hence is not invalidated by the composition of capital in agriculture being above average. The reasons why Marx distinguished between absolute rent and monopoly rent were (1) to distinguish whether the source of rent on the least fertile land was surplus-value produced within agriculture or surplus-value produced outside agriculture, and (2) because Ricardo had argued that monopoly rent was the only source of rent on the least fertile land. As discussed above, Ricardo's mistake was due to his identification of value and price of production.

xiv Especially Chapters 49 and 50.

xv This statement if very similar to Marx's "general observation" at the beginning of the Theories of Surplus-Value, discussed above.

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