The social significance of this doctrine is far-reaching. If it is correct, then all the social sections which are not engaged as manual and brain workers in the process of production, or in the transport of raw material, lead a parasitical life and consume the surplus value which is squeezed by the capitalist class out of the proletariat and appropriated without payment.
Quite otherwise are capitalist ideas. According to them, profit is the result both of the spirit of the enterprise and the ability of the capitalist, added to that portion of the capital which is put into the process of production: the machines and buildings and raw materials which are used up, and the labour power, all of which are bought at their proper exchange value. It is only fit and proper that the trader and moneylender should receive a portion of the profit so created, for they assist in realising the exchange value by bringing the commodities to the consumer, and thus rendering possible the process of production.
Surplus value or profit? Labour or Capital? Behind this question lurks the great class struggle of the modern social order. No wonder the Marxian doctrine of value and surplus value was the occasion for an extensive controversy, in which the famous problem of the average rate of profit played a great part.
6. The Average Rate of Profit.
According to Marx's doctrine of value and surplus value only variable capital creates fresh value and surplus value. An industrial undertaking of a lower organic composition, which thus employs much variable capital and little constant capital, must consequently create a greater surplus value or more profit than an industrial undertaking of higher composition which may employ the same total capital, but composed of greater constant and smaller variable portions than the former. Let us take two industrial capitals of £35,000 each. One expends £15,000 on the constant elements (machinery, raw materials) and £20,000 on the variable element (wages of labour). The other shows £20,000 constant part and £15,000 variable part. With an equal rate of surplus value—100 per cent.—the first capital would produce £20,000 surplus value (profit) and the other only £15,000 profit. Experience shows, however, that equal amounts of capital—in spite of temporary differences in profits—tend to produce equal profits. From this, it would appear that it is actually the capital expended and not the labour employed which determines the magnitude of the surplus value (profit), that the concrete results of the capitalist process of production do not confirm the Marxian theory of value, that the facts directly contradict the theory. It was Marx himself who drew attention to this problem. After he had constructed his theory of surplus value in the form of a scientific law, he continued: "This law clearly contradicts all experience based on appearance. Everyone knows that a cotton spinner, who, reckoning the percentage on the whole of his applied capital, employs much constant capital and little variable capital, does not, on account of this, pocket less profit or surplus value than a baker, who relatively sets in motion much variable and little constant capital."
How, then, can the equal rate of profit in the case of capitals of different organic composition be harmonised with the theory of surplus value?
Marx concedes that equal capital sums whose organic parts are unequally employed give an equal rate of profit, although the volumes of surplus value created are different. Two capital sums of £50,000 each, one of which, for example, represents £40,000 constant and £10,000 variable capital, and with a rate of surplus value of 100 per cent. gives £10,000 surplus value, while the other is composed of £10,000 constant and £40,000 variable capital, and with an equal rate of surplus value gives an amount of £40,000 surplus value, will nevertheless yield an equal rate of profit, although theoretically they would be unequal if the rate of surplus value directly determined the rate of profit. In the first case, the rate of profit would amount to 20 per cent. and in the second to 80 per cent. In reality both undertakings yield an equal rate of profit.
How is this explained, according to Marx? By means of competition, the different rates of profit are levelled to a general rate of profit, which is the average of all the various rates of profit. Thus the capitalists do not realise the surplus value as it is created in any particular factory, but in the form of average rate of profit as it is produced by the operations of the total capital of society. The average rate of profit may be lower or higher than the individual rate of profit, for the "various capitalists," as Marx explains, "so far as profits are concerned, are so many stockholders in a stock company in which the shares of profits are uniformly divided for every 100 shares of capital, so that profits differ in the case of the individual capitalists only according to the amount of capital invested by each of them in the social enterprise, according to his investment in social production as a whole, according to his shares."
While thus the individual rates of profit do not proportionately coincide with the rates of surplus value, i.e., while the degree of exploitation of the worker in the individual factory, and the volume of surplus value thus individually created, do not directly determine the individual rate of profit, it is the total mass of social surplus value which is the source of the average rate of profit. If the mass of the surplus value be large, the average rate of profit will also be great. Marx says: "It is here just the same as with average rate of interest which a usurer makes who lends out various portions of his capital at different rates of interest. The level of his average rate depends entirely on how much of his capital he has lent at each of the different rates of interest." The higher the various individual rates of interest, the higher will be the average rate of interest at which his capital has been put out.
The individual price of production signifies, therefore, cost price plus the average rate of profit, and not plus surplus value: it does not necessarily correspond with the total amount of the constant and variable portions of capital employed in an individual enterprise, plus the mass of the surplus value: the prices and magnitudes of value of commodities are not manifestly equal, as Marx has often pointed out. Of course, the total profits of the capitalist class coincide with the total surplus value extracted from the working class, provided, of course, that the supply of commodities corresponds with the social needs.