10. The enactment of closure within Capital: Volume III

10. The enactment of closure within Capital: Volume III

Introduction

We have seen in the previous chapter how, in Volume II, Marx considers the articulation of production with exchange through the process of the overall circulation of capital. In Volume III Marx proceeds to show how, on the basis of the unity of this articulation of production with exchange, the essential laws of capitalist production, which had been revealed in Volume I with his theory of surplus-value, become manifest at the surface of bourgeois society in the guise of the distributional forms of the 'trinity formula' that were so familiar to bourgeois economists. That is, how surplus-value takes on the distributional forms of profit, rent and interest, alongside the appearance of the value of labour- power as the wage.

Consequently Volume III may be decomposed into four main divisions as follows:

Division I - The qualitative and quantitative transformation of surplus-value into profit. (Parts I - III).

Division II - The division of gross profit into profit-on- enterprise and interest. (Parts IV & V).

Division III - The appropriation of surplus-value as rent. (Part VI).

Division IV - The 'trinity formula' of profit (interest), rent and wages, as the objective basis for the three great classes of bourgeois society. (Part VII).

In the course of this exposition in Volume III Marx comes to show how the material conditions underlying bourgeois society become inverted in the everyday understanding of the bourgeois individual. An inversion which then becomes generalized and systematized in the theories of bourgeois political economy.

In ending Volume III with the 'trinity formula' - the starting point of bourgeois political economy - Marx completes his specific problematic. He reaches the point where he can show how the inner laws of capital appear inverted in the mind of the bourgeois political economist.

Yet Volume III sets forth from capital as the unity of production and exchange. A unity in which the various discontinuities of the process of circulation have been provisionally held fast within its overall continuity. The problems indicated in the movement of capital in the previous volume, the imminence of crisis and rupture, remain foreclosed. But, as we shall see, such questions pointing towards crisis become increasingly insistent, repeatedly erupting into the text of Volume III as tangential digressions. Hence as Capital draws to a close with its final volume it comes to point beyond itself as the provisional closure which it has imposed becomes exhausted.

I) The transformation of surplus-value into profit

A) The qualitative transformation

Marx in the opening chapters of Volume III considers the qualitative distinction that arises between surplus-value and its phenomenal form, profit. To do this he begins by taking the individual capital insofar as it expresses the singularity of capital-in-general - that is insofar as it is merely the particular expression of capital as such. As a consequence Marx is still able to equate value with price and the magnitude of surplus-value with the magnitude of profit as he had done since Volume I. However, with the exposition of Volume II complete, Marx now posits the individual capital not merely in terms of production but in terms of individual capital as a particular unity of production and exchange. It stands as a particular unity of the particular forms of the circulation of capital between production and exchange.

As we saw with the theory of surplus-value, labour-power is subsumed in the capitalist process of production as variable capital. The creative and renewing powers of labour become appropriated as an objective force of capital. This subsumption of labour to capital must of course be repeated with the beginning of each production cycle. With each cycle capital must confront labour as an alien and antagonistic force set to devour it once more. It is indeed this repeated confrontation of capital and labour that defines the material basis for the class relations of bourgeois society.

But at the point at which labour has been successfully subsumed within the movement of capital, with the completion of the production process, the capitalist must leave production and enter the realm of exchange. Here a completely different set of problems awaits the capitalist. The capitalist now faces the problems associated with the realization of surplus-value rather than those of expropriating surplus-value from labour. At this point the capitalist's other is no longer the worker but other capitalists. The antagonism with labour is now eclipsed in the competitive battle between capitalists to buy and sell their commodities in the market.

With production and the subsumption of labour now presupposed as a mere phase in the overall reproduction of the individual capital, labour-power appears as merely another cost of production. It appears as merely another part of the total capital that must be realized and advanced in order that production may be recommenced. Labour-power, now reified as variable capital and taking its money-form as the wage, stands as just another 'factor of production' whose contribution must be paid for out of the sale of the final product before profit can be made. As merely another cost of production the specific functions of labour-power in producing new, and preserving old, value thereby become obscured in the homogeneity of money.

But it is not only the various costs of production that appear as one and the same in the homogeneity of money at this stage. Surplus-value must be realized in the money-form as the capitalist's gross profit. It is only in this form, which arises out of the process of exchange, that the capitalist comes to recognize the surplus-value that she has extracted from production. Surplus-value, with its appearance to the capitalist as profit, therefore appears as something external; something that emerges out of capital's interaction with other capitals in the process of exchange. Furthermore, as simply a sum of money, it can be juxtaposed to the sum of money that represents the costs of production.

With surplus-value in the form of profit being considered as something external to the individual capital which is then to be juxtaposed to the total costs of production of that capital, all the inner connections involved in the production of surplus-value become obscured. The internal formula of value derived in Volume I, namely: w = s + c + v makes its appearance for the capitalist as the external formula of the selling price: P = C + P Where P is the selling price, P is the gross profit and C is the total costs of production.

With this external formula of the selling price the price of the commodity appears to be determined, not by the value preserved and added in the production process by living labour, but by the (money) costs of production (which can be made up of any number of different elements) plus an externally determined mark up for profit. Hence profit is not seen to arise from the extraction of surplus-value from living labour but is instead seen to arise from the simple buying and selling of commodities.

This has important implications once the capitalist seeks to measure the efficacy of her capital against that of other capitals. Since profit is simply juxtaposed against the total costs, the internal measure of capital - the rate of surplus- value, which explicitly expresses the class relations of capitalist production - becomes transmuted into the external measure of capital - the rate of profit, which expresses the relation between capitals and capitalists. That is: e = s/v becomes replaced by r = s/(c + v) or r = P/C in the calculations of the capitalist.

It is this ratio, the rate of profit, not the rate of surplus-value, which comes to measure the fecundity of the individual capital for the capitalist and which therefore governs the capitalist's actions. In the competitive struggle between individual capitals it is the rate of profit that is of central concern to each individual capitalist and it is this rate which each will seek to maximize.

The rate of profit, however, does depend on the rate of surplus-value. A rise in the rate of surplus-value will tend to increase the rate of profit, while a fall in the rate of surplus-value will tend to lower the capital's rate of profit. Yet while the rate of profit is directly related to the underlying rate of surplus-value it is, at the same time, inversely related to the value composition of capital. This becomes clear if we rewrite the equation for the rate of profit in terms of both the rate of exploitation and the value composition of capital as follows: r = e/(k + 1) The determination of the rate of profit by the underlying rate of surplus-value therefore becomes mediated by the value composition of capital, by the relation of dead to living labour for each individual capital. A change in the rate of surplus-value may not therefore produce a corresponding change in the rate of profit. It may well be offset by an associated change in the value composition of capital. As a consequence the effects of changes in the underlying rate of surplus-value which expresses the social relations of production may well become obscured from view through its necessary mediation by the technical relations of production that are expressed in the value composition of capital.

So, in the opening three chapters of Volume III Marx unfolds this qualitative transformation of surplus-value into the form of profit and in doing so shows how this transformation serves to obscure the essential social relations of capitalist production. The failure of bourgeois political economy even to pose, let alone solve, this qualitative transformation of surplus-value into profit has meant, as Marx is keen to point out, that it has failed to grasp the true nature of profit within the capitalist mode of production. As a result bourgeois political economy has tended to produce two one- sided conceptions of profit.

The first conception of profit emerges from the simple and direct theorization of the everyday perceptions of the individual capitalist. From such perceptions profit appears as something completely external to the individual capital, as something that arises out of the interactions of the buying and selling of commodities rather than from their production. This leads to the conception that the true value of a commodity is its cost-price. Cost-price is the minimum price necessary to solicit the various factors of production required to reproduce the commodity. Profit, on the other hand, appears merely an accidental addition to the cost-price which may or may not occur according to the vagaries of competition and exchange. Thus the 'true value' of a commodity sold at a profit will always be below its selling price.

Such a perspective, which as we have seen is immediately apparent to the individual capitalist, came to be incorporated within theories of the vulgar economists; but, as Marx points out, it was also a view held by many early socialists. The most notable being Proudhon.

Equating labour costs with cost-price, Proudhon argued that profit arose from swindling in the process of exchange which allowed capitalists to sell their commodities above their 'true values' and thereby make unwarranted profits. By simply ensuring that all commodities sold at their cost-price the unjustness of capitalist exploitation could be eliminated and labour could obtain its fair reward.

The vulgar economists have long since circumnavigated such criticisms, while maintaining a similar perspective on the origins of profit, by simply denying the existence of profit as a normal state of affairs. For them, in the normal course of affairs, commodities will tend to sell at their cost-price, since what is usually classed as profit is in fact the interest the capitalist pays to herself for the use of her own capital. As such, profit is merely the cost that has to be paid for the use of capital; it is therefore merely a cost of production like any other and should be included in the total cost-price. Any profits made above this normal amount will eventually be competed away.(1)

The second conception of profit arises from the recognition of the persistence of profit as a given mark up over the cost- price which is neither competed away nor a simple product of swindling in the act of exchange. In this view the selling price is seen as the 'true value' of the commodity. Consequently profit is seen as an intrinsic part of the value of the commodity which is distinct from its cost. Profit is therefore not reduced to being merely another cost of production - it is not conflated with interest - but is rather seen as something over and above cost-price.

This conception of profit as a necessary and distinct part of the value of the commodity was that which was adopted by classical political economy. But, unwilling to trace the source of this necessary part of value to the exploitation of labour, they took it as a technical fact. All but the most primitive forms of production necessarily produce a surplus, and thus profit becomes viewed as simply a natural and technical fact of production. As a consequence, while the the existence and persistence of profit, as distinct from cost is accepted, its social form is denied.(2)

Between the denial of profit that arises with its first conception, and the affirmation of its necessity in the second, Marx clearly cleaves towards the second, although stressing its historical specificity. However, the first conception does contain an important element of truth, as we shall see when we come to consider the quantitative transformation of surplus-value into profit. But before this we must examine in detail the excursus with which Marx concludes Part I of Volume III.

The excursus We have seen that, even if the magnitude of surplus-value is equal to the magnitude of profit for an individual capital, the rate of profit will diverge from the underlying rate of surplus-value due to the mediation of the value composition of capital. As a consequence the social origins of profit in the exploitation of labour become obscured by the technical relations of production.

But the value composition of capital is not the sole expression of the technical relations that serve to obscure the origins of profit. So in the final chapters of Part I Marx proceeds to consider the other factors that serve to obscure the origins of profit. In doing so, however, Marx has to move away from the pure singularity of the individual capital with which he began Volume III to consider the individual capital in relation to other individual capitals. He has to begin the transition to the plurality of capitals which, as we shall see, he takes up more fully in Part II. But what is perhaps more important, in making this transition, Marx runs in to some difficulties. We find him unsettling the provisional closure that we found preserved at the end of Volume II. In fact by the end of this excursus the question of crisis erupts into the text in the form of an analysis of the relation between capitalist manufacturing industry and agriculture. Let us then consider this excursus.

The excursus begins with chapter 4. From Engels we learn that in the original manuscripts this chapter remained little more than a heading. It was left to Engels himself to fill in the contents as best he could for the final published version of Volume III. Of course we cannot say how close the resulting text of Engels is to what Marx would have written. Nor can we say precisely why Marx was unable write what seems to be a straight forward chapter. Yet we may suggest that the failure to write this chapter may indicate a difficulty, perhaps an uncertainty in setting out on this lengthy excursus rather than moving more or less straight onto Part II with the risk of a lack of comprehensiveness.

Nevertheless, whatever we may infer from the absence of chapter 4 in the original manuscripts, the published version that comes down to us consists of little more than a rather technical discussion, illustrated with several numerical examples, of the effect of the turnover of capital on the calculation of the annual rate of profit. What is the significance of this discussion?

As soon as we consider in any way the relation of the individual capital to that of other capitals it becomes clear that it is insufficient to consider the rate of profit as such. It becomes necessary to take into consideration that prime mark of the concrete particularity of each individual capital - its turnover period. An individual capitalist, in comparing her capital's performance with that of others capitals, will not be concerned with the rate of profit made over a particular period of turnover any more than she will be concerned with the rate of surplus-value. What will be of central concern is the common standard of the fecundity of different capitals - namely the annual rate of profit.

As we have previously noted, Marx, in Volume II, had already taken the first step in deriving the annual rate of profit from the rate of surplus-value by setting out the annual rate of surplus-value. Here, in Volume III, Engels simply fills in the gap by presenting the second step by showing how the annual rate of profit arises from the simple rate of profit. This discussion results in the following expression: r' = e.n.v/ (c + v) Where r' is the annual rate of profit.

We may rewrite this rather cumbersome expression offered to us by Engels as follows: R = e.n/ (k+1) From this it becomes clear that if both the rate of surplus- value (e) and the value composition of capital (k) are held constant, then the annual rate of profit (R) will be directly determined by the number of turnovers the capital in question makes in one year (n). The faster a capital can be made to turn over the greater the number of turnovers there will be in a year and hence the higher will be the annual rate of profit.

So with our move towards the plurality of individual capitals we find, with the turnover of capital, a further mediation between the determination of the rate of profit which is of concern to the individual capitalist and the underlying rate of surplus-value. For the capitalist, turnover, like the value composition of capital, does not appear as a mediation in the determination of profit by surplus-value - she does not see an increase in the rate of turnover as reflecting the faster production of surplus-value, as Marx in Volume II had shown was the case - but rather as an independent factor in the determination of the annual rate of profit; a factor that is no less important or essential than any other such factor. In fact, while the rate of surplus-value may not even appear in its disguised form of the profit per worker in the accounts of the individual capitalist, the rate of turnover will be of pressing everyday concern to her. As a consequence, turnover serves to further conceal the true origins of profit in the exploitation of labour. In fact, in terms of the rate of turnover, profit comes to be seen as simply a product of time itself! By raising the question of the annual rate of profit and its relation to the overall turnover of capital this excursus comes to presuppose the question of the turnover of constant capital. In Volume II Marx had only gone as far as dealing with the turnover of variable capital; the turnover of constant capital being notable by its absence.(3) This absence is no doubt an important factor in blocking Marx's attempts to write chapter 4, and, as we shall now see, serves to seriously disrupt the development of this excursus as Marx comes to consider further the relation of constant capital to the qualitative transformation of surplus-value into profit.

Chapter 5 deals with the question of the relation of constant capital to profit. However, an examination of this chapter soon reveals the rather preparatory and tentative nature of the excursus, even more perhaps than the absence of chapter 4 in Marx's original manuscripts. Not only is this chapter overloaded with a series of rather disparate empirical examples of the various economies that may be made in the employment of constant capital, but also the general discussion that precedes these examples is, to say the least, lacking in a certain degree of clarity. Yet before we proceed to examine the contents of this chapter any further we must first pause to discern its role and purpose at this point in Marx's exposition of the qualitative transformation of surplus- value into profit.

On reflecting back on the process of production from the standpoint of exchange, constant capital is remembered not as the material embodiment of labour objectified in precedent production cycles, but as simply the material forms of the means of production, which, as her property, the capitalist contributes to the process of production alongside, and independently of, the contributions made by land and labour. With all the inner connections between labour and constant capital obscured from view, the individual capitalist comes to regard constant capital as an independent and separate 'factor of production' (i.e. 'capital') that somehow coexists in the process of production side by side with the other equally independent and separate 'factors of production' (i.e. 'land' and 'labour').

In turning back to the sphere of circulation and exchange all reference to the productive use-values of the various 'factors of production' become eclipsed in the capitalist's overriding concern with cost. Each of the 'factors of production' now appears as simply a particular element in the total costs of production. An element, which like all the other coexisting elements of the total costs of production, acts as a negative determinant of the capitalist's profit.

This negative determination emerges more clearly if we rewrite the formula for the selling price as follows: P = P - C Since for the individual capitalist the selling price (P) is for the most part given, any increase in profit must come from a reduction in the total cost of production - or cost-price - (C). For the capitalist it does not matter how the reduction in the total costs of production is made; whether it comes from savings in the costs of the 'factor of capital' or from savings in the costs of the 'factor of labour', it makes no difference in the end. Any savings, no matter what their source, will serve to raise the capitalist's profit. Within this perspective all trace of labour as the sole source of both value and surplus-value becomes expunged. For the individual capitalist profit seems to arise just as much from her efforts to minimize the costs of the means of production (constant capital) as it does from her efforts to minimize the costs of labour (variable capital). Both these elements of the total costs of production appear as equally important negative determinants of profit. This then becomes reflected in the capitalist's calculations of the rate of profit which, as we have seen, becomes expressed in terms of the profit made over the total capital advanced - constant capital as well as variable capital.

In examining the 'Economy in the employment of constant capital' - which is the title of chapter 5 - Marx, at this point in his exposition, can be seen to be attempting to show how the various ways and means of making savings in constant capital serve to obscure the transformation of surplus-value into profit; not only in the mind of the individual capitalist but also in that of her individual labourer. That this was Marx's intention is clearly evident from the following passage that occurs towards the end of the opening section of chapter 5: ...the capitalist views economy of his constant capital as a condition wholly independent of, and entirely alien to, his labourers...This economy in the application of the means of production, this method of obtaining a certain result with a minimum of outlay appears more than any other inner power of labour as an inherent power of capital and a method peculiar and characteristic of the capitalist mode of production.

This conception is so much the less surprising since it appears to accord with fact, and since the relationship of capital actually conceals the inner connection behind the utter indifference, isolation and alienation in which they place the labourer vis-a-vis the means of incorporating his labour.

First, the means of production that make up the constant capital represent only the money belonging to the capitalist...and are related to him alone, while the labourer, who comes to in contact with them only in the direct process of production, deals with them as use-values of production only, as means of labour and materials of production. Increase or decrease of their value, therefore, has as little bearing on his relations to the capitalist as the circumstance whether he may be working with copper or iron...

Second, insofar as these means of production in the capitalist production process are at the same time means of exploiting labour, the labourer is no more concerned with their relative dearness or cheapness than a horse is concerned with the dearness or cheapness of its bit and bridle.

Finally,...the labourer looks at the social nature of his labour, at its combination with the labour of others for a common purpose, as he would an alien power; the condition of realising this combination is alien property, whose dissipation would be totally alien to him if he were not compelled to economise with it. The situation is quite different in factories owned by the labourers themselves, as in Rochdale, for instance. (Capital III, p. 84) Yet, while it is evident from a careful examination of chapter 5 and its context that Marx intended to show how the qualitative transformation of surplus-value into profit becomes obscured from both the individual capitalist and the individual worker, it is also evident that Marx is far from bringing his analysis of this to the point where it could be systematically presented. Marx, in this chapter, is clearly at a very preparatory stage of his investigation. He is still in the process of sifting through the immediately apparent concrete evidence in order to abstract the starting point for his analysis. Hence we find the substantial part of the chapter - four of its five sections - devoted to extensive discussions of various prominent contemporary examples of economies made in the employment of constant capital, drawing into consideration all the social and technical details that such economies involve.

In the first section, where Marx is in the process of drawing out his general analysis of this question, we find that his line of argument is still very much at an embryonic stage. Marx here repeatedly takes up a particular point of departure for his analysis only to abandon it in favour of another after a few paragraphs. With each of these abortive attempts to find the correct starting point we can see Marx in the process of locating and delimiting the development of his analysis at this point in his exposition. Yet it is a process that is far from being finished; a process that still awaits the further sifting through of the immediately concrete material of the subsequent sections before it can be adequately organized and presented.

So why should this chapter remain in such a preparatory state? What were the difficulties that led Marx to pass over this chapter, and indeed the other chapters in this excursus, in bringing the material of Volume III towards the point of presentation? On closer inspection we find the answer to these questions in what we may term the underlying textual dispersion which is working against Marx's efforts to delimit and define his analysis at this point in his exposition, and which lies at the very margins of principal line of theoretical development.

To make what we mean by this a little clearer we shall briefly consider the various component parts from which we can see Marx constructing his analysis of the economies made in the employment of constant capital in the opening section of chapter 5.

Savings in the employment of constant capital may be divided into two types.

1) Firstly we have those economies that are internal to the individual capital and which therefore confront the individual capitalist as being directly dependent on her own efforts as the manager of the production process. Such economies may be further subdivided into those made in the employment of fixed constant capital and those that are made in the employment of circulating constant capital. Let us consider each in turn.

a) The principal means for making economies in the employment of fixed capital, which Marx identifies in chapter 5, is through the extension of its use in any given period of time. As Marx observes, there exists a strong and readily apparent tendency in many branches of capitalist industry towards continuous, round the clock production. This drive for round the clock production is, as would be expected, a drive by the capitalists to maximize the rate of profit. But, as Marx is in the process of establishing, an increase in the rate of profit consequent upon the extension of the numbers of hours of production per day is not solely due, or even readily attributable to, the greater utilization of fixed capital. In fact we can see Marx identifying at least three such causes, only one of which could be easily seen as the result of the a greater economy in the use of fixed capital.

An extension in the hours of production per day may be simply an accompaniment to an extension in the working day of the labourer. Thus the increase in the rate of profit will be largely the result of the increase in the rate of surplus- value consequent on the greater production of absolute surplus- value. Yet this is not always the case. Even where there is a constant working day, and therefore little scope for increasing the production of absolute surplus-value, there is often still a drive towards round the clock production, even if this requires higher hourly wages for overtime and night time working. In such cases it is clear that the increase in the rate of profit cannot come from a simple increase in the rate of surplus-value.

This brings us to the second cause that Marx identifies. This being the increase that round the clock production allows in the overall turnover of capital. An increase in the number of hours of production per day will mean that capital will be able to turn over faster in any given period of time. With capital being turned over more times in any given period the number of times it will turnover in a year (n) will be greater and thus the annual rate of profit will be accordingly greater.

For instance, if production is extended from eight hours per day to twenty-four hours a day then what could be produced in three days can now be produced one day. Other things being equal, the number of turnovers will increase three-fold, thereby tripling the annual rate of profit. Obviously this is an important means of raising the annual rate of profit and a powerful incentive for the drive towards round the clock production; but it is not a cause that is necessarily attributable to an economy in the employment of fixed capital. (In fact it would seem that this cause of an increase of the annual rate of profit properly belongs to the previous chapter, but because Marx had yet to write chapter 4, being at such a preparatory stage of his investigation of these points, it is carried over to the opening section of chapter 5).

The third cause that Marx is in the process of identifying, the one that is directly attributable to savings made in the employment of fixed capital, arises from the elasticity of the use-values that serve to make up a given value of fixed capital. As Marx observes, an extension in the number of hours of production per day will require a corresponding increase in the advance of circulating capital. More output per day will require more raw materials to be worked up into the finished product, more fuel and other auxiliary materials to facilitate this increased production, and of course more labour to produce the extra output. However, such things as the number of machines, buildings etc., which make up the advance of fixed capital will remain the same. They will simply be used for more hours per day. Hence, insofar as fixed capital makes up a large proportion of the constant capital advanced, the increase in the variable capital that is advanced as a result of the extension of production will tend to be greater than that of the constant capital.

Let us consider a simple example. Suppose that for a particular individual capital the advance of variable capital (v) is 50 and that of constant capital (c) is also 50, for each day of production. Further, suppose that of the value of constant capital, 40 is fixed capital (f) and only 10 is circulating capital (q). Given that the rate of surplus-value is 100 per cent and that therefore surplus-value (s) is equal to 50, the simple rate of profit is given as follows: r = s/([v + q] + f) So r = 50 / ([50 + 40] + 10) Hence: r = 50 / 100 = 50% Now let us suppose that production is extended from eight hours per day to 24 hours per day and that this requires a pro rata increase in the advance of circulating capital, whether variable or constant. Hence the daily advance of variable capital becomes 150, while the daily advance of circulating constant capital becomes 30. The amount of fixed capital, however, remains the same at 40. With the amount of surplus- value also tripling due to the threefold increase in the daily production time, the rate of profit is given as follows: r = 150 / ([150 + 30] + 40) r = 150 / 220 = 68% So, in this elementary example, while the (simple) rate of surplus-value remains unchanged at 100 per cent, the (simple) rate of profit rises from 50 per cent to 68 per cent. For the individual capitalist this increase in the rate of profit seems directly due to the increase in her utilization of fixed capital - although this increase in the utilization of fixed capital is merely a particular means to reduce the value organic composition of capital - and this example is, in the midst of the competitive battle for increased profit, one which would be instantly recognisable and operative.

But, as Marx comes to realize in the course of his investigation which appears in the opening section of chapter 5, the view that we have illustrated by this example is insufficient. As Marx comes to point out, the wear and tear of the means of production that make up the fixed capital advanced will in general depend not so much on their time of existence, but on the time that they are in use. The more hours a machine is used per day, for instance, the sooner it will wear out. Thus, with any extension in the daily hours of production, the value that must circulate to make up for the wear and tear of machinery will increase while the value that remains fixed in the production process will tend to fall.

The formula that would have to be considered is not simply the one used above: r = s / ([v + q] + f) but rather: r = s / ([v + q + fq] + fx) Such that: F = fx + fq Where F is the total value advanced as fixed capital, fx is the value that remains fixed as fixed capital, and fq is the value circulated as the wear and tear of fixed capital.

So with the greater utilization of fixed capital comes greater wear and tear, which, in terms of the formula above, means that not only will the value of variable capital (v) and circulating constant capital (q) increase but also that part of the value of the fixed capital must be passed onto the value of the final product (fq). This added complication may serve to offset some of the rise in the rate of profit; but for Marx to pursue this point any further would have presupposed an analysis of the turnover of fixed capital (in order to understand the precise relationship of F to fx and fq in the above terms). But such an analysis properly belongs to Volume II as part of the larger analysis of the turnover of constant capital, which is, as we have already noted, absent. So we find that the development of this point becomes blocked at this stage in Marx's investigation since it demands a reallocation of the material at hand between this point in Volume III and a reworked Volume II.

b) So we have seen how Marx's analysis of the economies in the employment of fixed capital becomes blocked because it presupposes an analysis of the turnover of fixed capital which while belonging to Volume II was absent there. So what about his analysis of the economies in the employment of circulating constant capital? As Marx observes, capitalists make great efforts to cut down on the waste of raw materials and auxiliary materials in the production process in order to reduce costs and increase their profits. It therefore appears to the capitalist that such efforts are equally productive of profit as those used to economize on labour. In fact the capitalist may come to view these efforts in themselves - that is her own organization of production on the most economical basis - as the source of profit. Against this Marx points out that such improvements in the organization of production merely reflect an improvement in the productivity of labour which is only realized by the capitalist because the capitalist happens to own the means of production.

But for Marx to pursue this point any further would have obliged him to run ahead of himself in two ways. Firstly, the capitalist's claim to profit on the basis of her organization of production, as distinct from her advance of capital, is a question that presupposes an analysis of the division of profit into interest and profit-on-enterprise; an analysis that is not dealt with until Part IV of Volume III. Secondly, to show how the savings in the value of circulating constant capital reflect an increase in the productivity of social labour, which the individual capitalist does not recognize, presupposes an analysis of the relation between value and price which is not dealt with until Part II of Volume III.

Let us consider this second point a little further since it is an important one. When the capitalist succeeds in making extra savings in the employment of circulating constant capital she will reap extra profits. But, as we shall see when we come to consider Part II of Volume III, these savings reduce the individual value of the capitalist's output since less value is preserved in the form of constant capital, and thus less value is passed on into the final product. However, the capitalist does not obtain the individual value for his product but the market value (a weighted average for that branch of industry which she is operating in). The savings the individual capitalist makes do not increase the amount of profit produced but allow the individual capitalist to capture surplus-value from other capitalists in the same branch of industry in the form of surplus-profit. This becomes clear once such savings become generalized across the branch of industry since then the market value will fall towards that of the individual capitalist and her surplus-profits will tend to be eliminated. This fall in the market value reflects the growing social productivity of labour required directly or indirectly to produce that particular commodity.

So once more we find Marx's analysis at this stage blocked; but this time because it presupposes a development of theory that he has yet to make. This brings us to the second type of economies in the employment of constant capital which Marx is in the process of identifying and where he is to some extent on surer ground.

2) The second broad type of savings are those that are, for the most part, external to the individual capital and thus appear to the individual capitalist as being independent and even arbitrary factors in the determination of her rate of profit. There are two main interrelated forms of such external savings: economies of scale and technological advances in Department I industries which produce the means of production.

a) As Marx himself argues, economies of scale play a prominent role in the enormous development of the social productivity of labour that occurs within the capitalist mode of production. Yet, for the individual capitalist, economies of scale appear as simply a technical fact of production which has no connection with labour at all. Marx notes down examples of such a view in section 3 of this chapter where he considers various views recorded in the Reports of the Inspector of Factories concerning the economies of scale that had arisen in the generation and transmission of power. But as Marx remarks in the opening section of this chapter: ...the economy of production conditions [i.e. economies of scale] found in large-scale production is essentially due to the fact that these conditions prevail as conditions of social, or socially combined, labour, and therefore as social conditions of labour. They are commonly consumed in the process of production by the aggregate labourer, instead of being consumed in small fractions by a mass of labourers operating disconnectedly or, at best, directly cooperating on a small scale....

This total economy, arising as it does from the concentration of means of production and their use en masse, imperatively requires, however, the accumulation and cooperation of labourers, i.e. a social combination of labour. Hence, it originates quite as much from the social nature of labour, just as surplus-value originates from the surplus-labour of the individual labourer considered singly. Even the continual improvements, which are here possible and necessary, are due solely to the social experience and observation ensured and made possible by production of aggregate labour combined on a large scale. (Capital III, p. 79) For the individual capitalist, who only confronts her own labourers as isolated individuals offering their own labour- power for sale - and for the individual worker for whom the social combination of labour appears as an alien power - this social content of economies of scale remains hidden by their appearance as an external and technically determined fact.

b) The concealment of the growth in the social productivity of labour as an external and technical fact, which then endows constant capital with an apparent independence from labour, arises not only with economies of scale but also with the technological advance of those industries which produce the means of production. With such technological advances, which raise the productivity of labour in Department I, there emerges a tendency for the value of constant capital to fall since more means of production can be produced with a given socially necessary labour time. Yet all the individual capitalist sees is a fall in the relative price of her means of production; something that is completely independent of labour as far as she conceives it (i.e. the labour she employs) and something that is both arbitrary and independent of her own operations.

What is more, this concealment is not simply confined to the individual capitalist but extends to the individual labourer, as Marx himself remarks: It scarcely needs to be mentioned, then, that as far as concerns the productivity of labour in one branch of industry as a lever for cheapening and improving the means of production in another, and thereby raising the rate of profit, the general interconnection of social labour affects the labourers as a matter alien to them, a matter that actually concerns the capitalist alone, since it is he who buys and appropriates these means of production. The fact that he buys the product of labourers from another branch of industry with the product of labourers in his own, and that he therefore disposes of the product of the labourers of another capitalist only by gratuitously appropriating that of his own, is a development that is fortunately concealed by the process of circulation etc. (Capital III, p. 85) But it may be asked: Why should the individual capitalist not recognize the cheapening of her constant capital as a product of the technological advance of other industries; an advance at least attributable to the labour employed in research, development and innovation? Furthermore, why should this cheapening appear as not only extraneous but also arbitrary?

The answer to this is that the decline in the value of constant capital as result of technological advances in Department I industries is mediated. The individual capitalist does not see the immediate value of her constant capital but only its mediated cost-form, its price. The fluctuations of the prices of the means of production around their values, that may arise from a whole host of secondary factors unrelated to the state of technology, means that the individual capitalist can be content to view the advance of technology in Department I as simply one of many seemingly arbitrary factors that serve to alter the price of her means of production. Since the fluctuations in the prices of the means of production arise mostly from factors over which the individual capitalist has little or no control there is no incentive for her to discern or identify in any detail from whence they arise.

It is in pursuit of this point that Marx is lead, in chapter 6, to address the question of price fluctuations of the means of production (this subsequent chapter being duly entitled 'The effects of price fluctuations').

So, with our brief reconstruction of the possible analysis of the economies in the employment of constant capital, it can be seen that Marx faced important difficulties in developing and presenting his analysis of such matters at this point in his exposition. As we have seen, particularly in the case of those economies in the employment of constant capital that we have categorized as being 'internal' to the individual capital, Marx's line of argument demands not only a reworking of Volume II to include an analysis of the turnover of constant capital which appears to be absent there; it also presupposes theories of market versus individual values and the division of profit into interest and profit-on-enterprise, both of which can only be presented after the theory of the qualitative transformation of surplus-value into profit. Yet while the line of argument that Marx is in the process of constructing in chapter 5 comes repeatedly to point away from itself towards other parts of Capital, this is not true of his line of argument as it extends into chapter 6. Here Marx comes to the point of going beyond the limits of Capital, as he himself stops to warn us in the opening paragraph of this chapter's second section: The phenomena analysed in this chapter require for their full development the credit system and competition on the world-market, the latter being the basis and the vital element of capitalist production. These more definite forms of capitalist production can only be comprehensively presented, however, after the general nature of capital is understood. Furthermore they do not come within the scope of this work and belong to its eventual continuation. (Capital III, p. 110) In fact, as we shall see, in the course of this chapter Marx comes to step beyond these limits to tentatively pose the question of crisis.

Chapter 6 What then do we find in chapter 6? Again, as with the preceding chapters in this excursus, chapter 6 is evidently in a preparatory stage of investigation. The whole chapter pivots on what would appear to be a preliminary point: that of the distinction between the appreciation/depreciation of capital on the one hand, and the tie-up/release of capital on the other. A point that would perhaps have been more appropriately dealt with in the omitted analysis of the turnover of constant capital of Volume II. This point is raised and investigated, after Marx has made a few clarifying remarks in first of the three sections of chapter 6.

Marx sets out by making a quite clear and succinct distinction between these two sets of categories as follows: The question is what we mean by release and tie-up of capital? Appreciation and depreciation are self- explanatory. All they mean is that a given capital increases or decreases in value as a result of certain general economic conditions... All they mean, therefore, is that the value of a capital invested in production rises or falls, irrespective of its self-expansion by virtue of the surplus-labour employed by it.

By tie-up of capital we mean that certain portions of the total value of the product must be reconverted into elements of constant or variable capital if production is to proceed on the same scale. By release of capital we mean that a portion of the total value of the product which had to be reconverted into constant or variable up to a certain time, become disposable and superfluous, should production continue on the previous scale. (Capital III, p. 110) So what is the importance for Marx of making such a distinction at this point in his investigation?

A rise or fall in the price of the means of production, or in wages for that matter, will have several distinct effects which must be separated out if we are to understand how they shape the perceptions of the individual capitalist who confronts them.

Firstly, a rise in the price of the means of production, for whatever reason, will have two effects for any capital subject to them.

i) A fall in the rate of profit on such capitals and

ii) a rise in the price of the commodities produced by those capitals.

Both of these effects stem from the appreciation of capital (in this case constant capital) caused by such price rises in the means of production. If we assume, as we must at this stage of Marx's exposition, that prices reflect directly the underlying labour-values, this can then be seen from the following expressions: Given that W = s + v + c and that W* = s + v + [c + Dc] then W* = W + Dc Where W* is the total value after the rise in value of constant capital, W is the total value of commodity before the this rise in value of constant capital, and Dc is the actual increase in the price/value of constant capital.

So we can see that the appreciation in the value of constant capital leads to a rise in the total value of the commodity produced and contrawise a depreciation of constant capital due to a cheapening of the means of production (in which case Dc would be negative) leads to a fall in the total value or price of the commodity. But at the same time: Given that r = s/ (c + v) and that r* = s/ (c + Dc + v) Then if Dc > 0 r* < r and if Dc < 0 then r* > r Where: r* is the new rate of profit.

So an appreciation of capital brought about by a rise in the value of constant capital raises the value of the commodity which it produces but at the same time lowers the rate of profit made on the advance of that capital.

All this is perhaps a little obvious. However, there is a further effect that emerges if we consider the reproduction of capital. As Marx points out, the value of a commodity is determined not so much by the labour incorporated in it in any single production cycle but by the socially necessary labour required for its reproduction. If, for example, there is a rise in the value of raw materials to produce a particular commodity then as soon as this increase occurs there is a rise in the value required to reproduce that commodity. This is so even if there are raw materials in still in the process of production which were purchased at prices reflecting the old values of raw materials. The constant capital that such raw materials represent becomes revalued according to the labour required to replace these raw materials rather than the labour that was actually embodied in them. This revaluation of constant capital falls to the capitalist as a temporary windfall profit insofar as she is able to sell the commodities which she produces at the price reflecting their new value while having produced them with raw materials purchased at prices reflecting earlier values. (Of course the reverse is true with a depreciation of constant capital, or variable capital for that matter).

This may be seen more clearly if we refer back to the formula for the selling price rewritten in terms of profit; that is: P = P - C Profits appear to the individual capitalist as simply the difference between the selling price (P) and the total costs (C). Hence if the selling price is able to rise due to a rise in the costs of raw materials, for instance, then the profit made with that part of output made with raw materials purchased at their old prices becomes: P* = P* - C Where * denotes the new levels of P and P.

In fact if all the new costs are to be passed on into the selling price then we have: P* =[ P + DC ] - C Where DC is the increase in the total costs due to higher raw material prices.

The rate of profit will then appear as simply: r = P* / C The appreciation of the old values of constant capital being fully incorporated in these transient profits. In terms of the underlying value formula however this situation may be seen as follows: r = [ s/( c + v ) ] + Dc/(c + v) Here the increase in profits, and thus the rate of profit, can be seen as arising from the addition of the appreciation in the value of constant capital (Dc). Something that is secondary to the appropriation of surplus-value in the production process of the individual capitalist, and something that is transient. But from the capitalist's perspective, as represented by the formula of the selling price, this fortuitous windfall profit is just as important as the rest of her profits and is amassed with them without any particular distinction.

Such windfall profits, or losses that arise with depreciation of capital, particularly constant capital, serve to further distance profit from its origins in the exploitation of labour since they appear to arise, and then dissipate, from apparently quite fortuitous circumstances that seem to have little to do with labour at all. Yet the appreciation or depreciation of capital does not simply serve to distance profit from its origins in surplus-value and the exploitation of labour, but also from capital itself. With the appreciation of capital, capital seems to expand itself quite independently of its appropriation of labour in the production process. This becomes clearer if we examine the tie-up or release of capital that emerges with the appreciation or depreciation of all but the most newly invested capitals.

If, for example, the price of raw materials falls for a particular capitalist then she will find that they require less capital to maintain the same scale of production as before. Capital will be released and will be freely available to be either invested elsewhere in other branches of industry or reinvested in the original branch of industry to allow a greater scale of production. This release of capital appears to the capitalist initially as an expansion of her money- capital that has occurred independently of the rate of surplus- value. As such, capital is not seen as self-expanding value that arises from the expropriation of surplus-labour in production. The true nature, not only of profit but equally of capital, becomes denied in the mind of the individual capitalist.

So we can see the importance of making the distinction between the appreciation/depreciation and the tie-up/release of capital. It is a preliminary exercise which then allows Marx to unfold his analysis of how price/value fluctuations affect the individual capitalist's perceptions of profit and capital. But, as we have already noted, this brings him perilously close to the limits of his exposition. Symptomatic of this is the uneasy conflation of value with price that we find throughout the text of chapter 6. In fact it should be noted here that the expressions set out above which describe the appreciation of capital in both value and price terms are in themselves highly problematic at this point. But this tangential movement becomes even clearer when Marx briefly steps beyond these limits to briefly consider the question of the cyclical crises that may arise between agricultural and manufacturing industries.

Agriculture and crisis With his consideration of the release and tie-up of capital the pressing yet premature imperative for Marx to address the question of crisis erupts into his investigation (Forschung) which can be seen taking place in chapter 6. In fact we find that the entire concluding section of this chapter comes to be devoted to a detailed account, drawing on numerous sources and authorities, of the unfolding of the Cotton Crisis of 1861-5. From the account of this contemporary economic crisis Marx is able to tentatively put forward a particular theory for the periodic crises that may emerge between capitalist manufacturing industry and agriculture, a theory which we may take as a staging post towards what would have been Marx's general theory of crisis. To see how the how the question of the release and tie-up of capital served as a prelude for Marx's consideration of the question of crisis we must briefly summarize this particular theory of crisis which he puts forward at this point in his investigation.(4)

For Marx, agriculture was distinguished from much of manufacturing by two interrelated factors. Firstly, agricultural production requires relatively long production periods which means that it is unable to respond to changes in demand without violent fluctuations in the price of its output. Secondly, agriculture tends to be particularly resistant to the introduction of improved capitalist methods of production which means that the productivity of the labour that it employs tends to fall behind that of manufacturing industries.

With productivity of labour in agriculture lagging behind that in manufacturing there will emerge a tendency for the growth in manufacturing industries, and with this its demand for agriculturally produced raw materials, to outstrip the growth of agricultural production, and thus the supply of agriculturally produced raw materials. As a result a point will be reached when the shortage of agricultural products will cause the relative prices of such products to rise. What is more, due to the long production periods characteristic of agriculture, such price rises will not only be violent but prolonged.

With the large and prolonged rise in the relative price of agriculturally produced raw materials the rate of profit in manufacturing industry will be cut, but, perhaps more importantly, a large slice of capital will become tied-up in merely maintaining the existing scale of production. Thus not only will the incentive for fresh investment be diminished but also the means for such investment will be dramatically reduced. As a result the growth in the manufacturing industries will grind to halt and the demand for raw materials will slump.

Yet, just as this occurs, the increase in agricultural products stimulated by their earlier dramatic rise in price will be coming onto the market. With falling demand and rising supply of agriculturally produced raw materials the prices of such products will now plummet. Such falling prices of raw materials will then serve to boost profits in the manufacturing industries and at the same time cause an enormous release of capital which had been previously advanced to purchase these raw materials. Hence both the incentive and the means for fresh manufacturing investment will be restored and the conditions for the next cycle and crisis would be established.

As can be seen the tie-up and release of capital plays a central role in explaining the dynamics of the periodic crisis which may emerge with the articulation of capitalist manufacturing industry and capitalist agriculture. In this particular theory of the crisis these twin categories, alongside the rate of profit, act as the regulating mechanism in the accumulation of capital. And this was important for Marx's investigations into the theory of crisis since, as we shall see later, Marx needed to show, against Ricardo, how the accumulation of capital was not simply dependent on the rate of profit. Furthermore, the tie-up and release of capital brings with it, albeit implicitly, the whole question of rupture in the articulation of production with exchange and the preservation and devalorization of value and capital which, as we shall see, would have been essential elements in any general theory of crisis that Marx may have constructed.

But while the tie-up/release of capital may be central to Marx's theory of the periodic crises that emerge between manufacturing and agriculture, and while they may be a vital element in his preliminary investigations into a general theory of crisis, they are categories which are, at best, marginal to the theory of the qualitative transformation of surplus-value into profit. By raising the question of crisis, by abrogating the unity of the articulation of production with exchange upon which Marx's theoretical development is based at this point, Marx steps beyond the limits of his exposition and in doing so points beyond the principal line of theoretical development of Capital itself.

We have dealt at some length on this excursus within Part I of Volume III since it is here that we can see most clearly Marx at work in delimiting his theoretical line of development. As we have seen, most of the problems Marx faced in bringing this excursus to the point of presentation were dependent on the reallocation of its material to other parts of Capital and it would seem reasonable to suppose that if he had reached the point of presenting this part of Volume III it would have consisted of little more than a few concluding remarks to his main exposition of the qualitative transformation of surplus-value into profit. But with the emergence of the question of crisis we find this excursus pointing beyond the limits of Capital and its principal line of theoretical development. It is a question that, as we shall see, arises with ever greater force on the margins of Marx's exposition in Volume III to disrupt it as it proceeds towards its conclusion. All of which will become clearer as we proceed.

B) The quantitative transformation of surplus-value into profit Throughout Part I it was assumed that the mass of surplus- value produced by an individual capital was equal to the mass of profit it realized in exchange. Now, in Part II, this quantitative identity between surplus-value and profit is dropped as Marx moves away from the singularity of the individual capital to take up the standpoint of the multiplicity of many individual capitals. With the severing of this quantitative identity between the surplus-value and the profit of the individual capital, the perspective that takes profit as being both external and arbitrary comes into its own - since we have now entered the contingent world of capitalist competition and exchange. A world of war of all against all in which profit is grasped by fair means or foul. A world in which the inner laws of capital and value appear to be denied. Let us recall what Marx said about these matters in relation to value and price in Volume I: Magnitude of value expresses a relation of social production, it is the connexion that necessarily exists between a certain article and the portion of the total labour-time of society required to produce it. As soon as magnitude of value is converted into price, the above necessary relation takes shape of a more or less accidental exchange-ratio between a single commodity and another, the money-commodity. (Capital I, p. 102) What is true of the price of the commodity is also true of that part of the price that represents profit.

However, in the course of Part II, Marx seeks to show how, through what we shall term the convergent tendency of capitalist competition, the inner laws of capital and value come to assert themselves over the arbitrary contingency of exchange and circulation, so that the multiplicity of divergent individual capitals becomes subsumed within the singularity of the totality of social capital. Through this convergent tendency of competition, prices are shown to be determined by values, and profits are shown to be determined through the redistribution of surplus-value.

So what is this convergent tendency of capitalist competition? How does it function? Marx identifies two moments within this tendency, each of which we shall now consider in turn.

i) The moment of intra-branch competition An individual capital first confronts other individual capitals in its own branch of industry. Competition between capitals within the same branch of industry will tend to place pressure on each of the capitals operating in that branch to adopt the most profitable and efficient techniques of production. Failure to comply with such competitive pressures will mean that an individual capital will find itself undercut and eventually forced into bankruptcy. Hence, with all capitals within a particular branch of industry being driven towards the adoption of similar techniques of production, all capitals within that branch will tend to have a similar value composition of capital. This allows us to compare capitals within a particular branch in terms of their relative labour- values, rather than in terms of prices.

Although each individual capital is driven to adopt the standard technique of production of its own branch of industry, the labour embodied in a unit of the commodity produced may still vary significantly across the different individual capitals operating in that branch of industry. Some capitals may be more favourably placed with respect to markets or sources of power and raw materials, or else they may be able better to utilize the techniques of production through more efficient organization or labour discipline etc. Consequently there will be a range of individual values for the commodities produced by a particular branch of industry reflecting the particular labour times embodied in them by each of the individual capitals.

Now, if the total mass of commodities produced by the branch of industry is sufficient to meet the total social demand for them at some price reflecting a value within the range of individual values, then those capitals that are more efficient or more favourably placed will, on entering the market with their produce, find that the individual values of their commodities which they have to sell is lower than that of most of their competitors. If they seek to sell their commodities at a price reflecting the lower individual value of their commodities then they will attract an excess of demand for them since their commodities will be the cheapest on the market. Those individual capitals which are inefficient or less favourably placed, and which therefore bring to the market commodities with higher than average individual values, will find that if they attempt to sell their commodities at prices reflecting their individual values then they will be overpriced, and they will consequently face deficiency in demand.

In such a situation those seeking to sell commodities with low individual values will raise the prices to take advantage of their excess demand; while those with high individual values will be obliged to cut their prices in order to sell their commodities. As a result prices will converge towards a single price at which all commodities can be sold and the market cleared. This price will reflect what Marx terms the market value. So, with the convergent tendencies of intra- branch competition, the various and divergent individual values produced by the multiplicity of individual capitals within a particular branch of industry are reduced to a single market value.

As a result of this formation of a common market value, capitals with individual values lower than the market value will sell their commodities at prices above that reflecting their value. They will therefore obtain more profit than that warranted by the surplus-value they had expropriated in the production process; that is, they will earn surplus-profits. Such surplus-profits will be at the expense of those capitals who, on selling at a price reflecting the market value, sell their commodities below their individual values. These less fortunate or less efficient capitals will obtain less profit than that warranted by the surplus-value that they have produced. Their surplus-value will be, in effect, transferred to their more fortunate or efficient competitors.

So, with the convergent tendencies of intra-branch competition and the consequent totalization of individual values into a single market value, the surplus-value produced by each individual capital in the sphere of production becomes redistributed in the act of exchange. Here we have the first quantitative distinction between the surplus-value that is produced by an individual capital and the amount of profit that it realizes. It is only in the rather special case of an individual capital producing a commodity with an individual value equal to its market value that profit will equal surplus- value.

ii) The moment of inter-branch competition An individual capital is not simply in competition with other capitals in its own branch of industry; it is also ultimately in competition with all other capitals since capital can always be withdrawn from one line of business and invested in another - given sufficient time of course. In fact it is through inter-branch competition that social labour becomes allocated between the various branches of industry and which, in so doing, ensures that the social demand for a particular commodity is in accordance with its supply (which is in fact a presupposition of our analysis of intra-branch competition and the formation of market values). With inter-branch competition we find that market values become transformed into production prices, and with this surplus-value becomes redistributed as profit between branches of industry, not merely within them, so that we find a further quantitative distinction between surplus-value and profit.

While capitals within a particular branch of industry will be obliged to adopt similar techniques of production and will therefore tend to have the same value composition of capital, this will not be the case for capitals in different branches of industry. Since the different kinds of commodities that are produced by the various branches of industry will require vastly different techniques for their production, the value composition of capital will necessarily vary greatly between different industries.

But this variation in the value composition of capital between different branches of industry means that, given a constant and uniform rate of surplus-value across all industries, if commodities are to be sold at their market values, then profit rates must also vary between different branches of industry. In those branches of industry that are labour intensive, and which therefore have low value compositions of capital, profits rates will be high; while in those industries that are 'capital' intensive, and which consequently have high value compositions of capital, profit rates will be low.

However, competition drives capitals to seek out the most profitable areas for investment. Capital will be withdrawn from those industries with low profit rates and reinvested in those with high profit rates. Hence, if capitalists sought to sell at market values, capital would be transferred from those industries with a high value composition of capital to those with a low value composition of capital. As a result, in those industries with a high value composition of capital the supply of commodities would diminish and market prices would tend rise above the market values thereby raising the rates of profit in these industries; while in those industries with a low value composition of capital the supply of commodities would increase, depressing market prices below market values and thereby lowering these industries' rates of profit. Thus the rates of profits of the different types of industry will tend to converge towards a uniform general rate of profit at which there will be no further incentive to transfer capital from one branch of industry to another.

With a uniform general rate of profit commodities will no longer sell at their market values but at, what Marx terms, their production prices. These production prices will systematically deviate from market values according to the relative value composition of capital in each industry. The production price being higher than market value in those industries with a high value composition of capital; and below market value in those with a low value composition of capital. It will be only in those odd industries that happen to coincide with the average composition of capital that market value will be equal to the production price.

With actual market prices regulated by production prices, rather than market values, there will be effected, through the process of the exchange and circulation of commodities, a net transfer of surplus-value from those industries with a low value composition of capital to those with a high value composition of capital. Thus profits realized in those industries with a high value composition of capital will be greater than the surplus-value which they themselves produced; while for those industries with a low value composition of capital the reverse will be the case. Hence, inter-branch competition leads to a further quantitative divergence between surplus-value and profit. The only capitals for which the profit realized will directly correspond in magnitude to the surplus-value extracted in production will be those few that not only produce under the average conditions for their own particular industry but which also have an average value composition of capital. So in general, the profit a capital realizes will not equal the surplus-value that it has produced.

Thus for the individual capitalist all trace of the origins of price in labour-values, and thus of profit in surplus- value, is completely obscured with the transformation of values into production prices through the heat of capitalist competition in the sphere of exchange and circulation. As Marx himself comments: We saw in Part I that surplus-value and profit are identical from the standpoint of their mass. But the rate of profit is from the very outset distinct from the rate of surplus-value, which appears at first sight as merely a different form of calculating. But at the same time this serves, also from the outset, to obscure and mystify the actual origin of surplus-value, since the rate of profit can rise or fall while the rate of surplus-value remains the same, and vice versa, and since the capitalist is in practice solely interested in the rate of profit. Yet there was difference of magnitude only between the rate of surplus-value and the rate of profit and not between the surplus-value itself and profit. Since in the rate of profit the surplus- value is calculated in relation to the total capital and the latter is taken as its standard of measurement, the surplus-value itself appears to originate from the total capital, uniformly derived from all its parts, so that the organic difference between constant and variable capital is obliterated in the conception of profit.

Disguised as profit, surplus-value actually denies its origin, loses its character, and becomes unrecognisable. (Capital III, p. 167) But now, with the quantitative distinction between surplus- value and profit: The actual difference of magnitude between profit and surplus-value - not merely between the rate of profit and the rate of surplus-value - in the various spheres of production now completely conceals the true nature and origin of profit not only from the capitalist, who has a special interest in deceiving himself on this score, but also from the labourer. (Capital III, p. 168) Furthermore, the perspective that takes profit as something external and accidental now becomes further consolidated; as Marx proceeds to argue: ...since the mere transformation of surplus-value into profit distinguishes the portion of the value of a commodity forming the profit from the portion of the value of a commodity forming its cost-price, it is natural that the conception of value should elude the capitalist at this juncture, for he does not see the total labour put into the commodity, but only that portion of the total labour for which he has paid in the shape of means of production, be they living or not, so that his profit appears to him as something outside the immanent value of the commodity. Now this idea is fully confirmed, fortified and ossified in that, from the standpoint of his own particular sphere of production, the profit added to the cost-price is not actually determined by the limits of the formation of value within his own sphere, but through completely outside influences. (Capital III, p. 168) This confirmation of the apparent arbitrariness of profit, of its origins in the contingencies of circulation and exchange, becomes systematized in the theories of supply and demand of the vulgar economists. For such economists the price of a commodity, and thus any incidental profit which may be made on its sale, arises out of the interactions of supply and demand. Against this view Marx argues that supply and demand do not determine prices as such but rather the deviation of actual market prices from production prices. In fact the interaction of supply and demand is only a mediation through which value, modified into the form of production prices, comes to regulate market prices and the exchange and circulation of commodities.

If, for example, demand shifts upwards for a particular commodity, then this increase in demand will be choked off at first by an increase in the market price for that commodity so that its market price rises above its production price. This will increase profits for those capitalists producing such commodities and raise their rate of profit above the average for the economy as a whole. Capital will then be attracted into this branch of industry by this higher than average rate of profit bringing with it an increase in its supply of commodities. This increase in supply will then tend to reduce the market price towards the production price and so profits will diminish, and the rate of profit will towards the average.

Thus the contingencies of supply and demand only cause the deviations of market prices from production prices, and hence individual profit rates from the general or average rate of profit; they do not, as the vulgar economists insist, determine prices or profits as such. Yet the vulgar economist, trapped within the perspective of the individual capitalist, is unable to see the regulation of price and profit by the inner laws of capitalist production. These can only be grasped by taking the perspective of capital as a social entity, in which the relations of exchange which appear as contingent and external to the individual capitalist become recognized as the internal metabolism of social capital as a whole. This becomes most clearly expressed in terms of the formation of the general rate of profit which emerges through the convergent tendencies of capitalist competition.

In the competitive battle between the multiplicity of individual capitals each capital seeks to maximize its own rate of profit. Yet in part, the efforts of each individual capital to obtain more profits than its rivals will tend to cancel out. To that degree there emerges a tendency for individual profit rates to converge towards a common uniform rate of profit. As we have already noted, within a particular sphere of production each capital will be driven to adopt the most advanced and profitable techniques of production; while the competitive transfer of capital between different industries will tend to iron out the divergence in profit rates which arise with differing value compositions of capital.

Of course there are important obstacles and counter- tendencies to that of the convergence of profit rates. As we have already noted, within a particular industry certain capitals will enjoy a competitive advantage over other capitals in that industry due to either their more efficient organization or to their more fortuitous circumstances. Furthermore, in the pursuit of greater profits capitals will seek to advance their techniques of production. Those who succeed in doing so first will consequently be able to gain further competitive advantages and thereby greater surplus- profits over their rivals. Thus the tendency towards a single technique of production within an industry is repeatedly negated by the attempts of the more advanced capitals to go beyond this standard technique of production in the search for ever greater surplus-profits.

At the same time, the convergence of profit rates between industries that emerges with inter-branch competition also faces obstacles due to the interruptions that may emerge with the free flow of capital in and out of particular industries. For example, capital may be inhibited from entering a particular industry due the existence of a monopoly in that industry. Alternatively capital may find it difficult to leave a particular industry due to it being locked in the form fixed capital.

Consequently there is never actually a uniform rate of profit for all individual capitals or even across the average profit rates for all branches of industry. However, out of this contradictory movement between the tendency for profit rates to converge and the obstacles and counter-tendencies that it faces, which arise out of the moments of intra- and inter-branch competition, there emerges the general rate of profit.

Given that the total magnitude of prices is equal to the total magnitude of value, and the total surplus-value produced is equal to the total distributed through exchange as profit, Marx is able to show that the general rate of profit (R) is determined by the total surplus-value produced by all capitals (Ss) divided by the total variable and constant capital advanced (Sv and Sc); that is: R = Ss/ (Sv + Sc) Hence the general rate of profit, the regulator of prices and profits, becomes defined and determined in value terms. The apparently arbitrary and contingent relations of exchange are hence shown to be governed by the underlying value relations of production.(5)

What is more, the general rate of profit stands forth as the social measure of the individual capital. With a rate of profit equal to the general rate of profit, an individual capital comes to realize a profit in the same proportion to itself as the total social surplus-value produced and realized to the total social capital that is advanced. Hence, if, for example, an individual capital advances a thousandth of all capital advanced then it will realize, at the general rate of profit, a thousandth of the total surplus-value produced as profit. Here the individual capital emerges as no more nor less than a particular part, among many other particular parts, of the totality of social capital (and likewise the capitalist appears as a particular member of the capitalist class). The profit it realizes is now no longer external and arbitrary, but dependent on the relation of the individual capital to social capital as a whole. The individual capital therefore now stands revealed as merely a particular part of the total social process of the production and distribution of surplus-value.

If an individual capital gains a rate of profit higher than the general rate of profit it can only do so because another capital obtains a rate of profit less than the general rate of profit. Those individual capitals whose rates of profit fall below the general rate of profit are faced with the prospect of eventual extinction if their predicament persists. It is with reference to the general rate of profit, the social measure of capital as self-expanding value, that the individual capital is disciplined to act as a particular expression of capital-in-general.

So, in Part II, Marx comes to show how the dialectic of capital constitutes its unity as the singularity of the total social capital through the oppositions and diversity of the multiplicity of individual capitals in competition. He shows how the unity of value with price and surplus-value with profit, having been lost at the level of the individual capital, is reconstituted at the level of the total social capital.

But this unity is merely provisional. Marx is only able unequivocally to establish such unity by emphasising the convergent tendency of capitalist competition and abstracting from all its obstacles and counter-tendencies which serve to break up this provisional unity of the dialectic of capital. This process of abstraction with which Marx brings out the final results of the convergent tendency of capitalist competition is conducted through several interrelated sets of assumptions. These sets of assumptions are ones which Marx has maintained throughout his principal line of theoretical development in all three volumes of Capital in order to bring out the unity within the dialectic of capital, but which now reach their most explicit, and perhaps most critical, significance. Let us examine them.

i) The assumption of a constant and uniform rate of surplus- value The assumption of a constant rate of surplus-value is one that Marx explicitly maintains from Volume I onwards. It is with this assumption that Marx consolidated the first part of his provisional closure by abstracting from all effects of class struggle. With the rate of surplus-value held constant, labour can safely be taken to be subsumed within capital and the objective movements of capital can be laid bare without interruption.

Now, with the multiplicity of individual capitals, this assumption must further unfold to produce the accompanying assumption of a uniform rate of surplus-value across all individual capitals. This assumption greatly simplifies Marx's exposition of the formation of the general rate of profit and the transformation of market values into production prices, since he need only consider the differences between individual capitals in terms their varying value compositions of capital, rather than having to take into consideration variations in the rates of surplus-value at one and the same time. But this assumption does not merely simplify Marx's exposition of these points. By assuming a uniform rate of surplus-value, so that each capital exploits labour to the same degree, Marx takes each individual capital from the very start as implicitly acting as capital-in-general to the same degree as any other individual capital. In this way Marx can clearly show the process through which each individual capital emerges explicitly as a particular expression of capital-in-general. But in doing so he has to foreclose the actions of class struggle that may both constrain and interrupt this process.

With the eruption of class struggle not only will the assumption of a constant rate of surplus-value be undermined but also that of a uniform rate of surplus-value across all branches of industry. Class struggle will mean that the rate of surplus-value will be continually contested, and thereby subject to alteration, within all individual capitals. But class struggle does not develop evenly. In some industries the balance of class forces may tilt one way, while in another it may tilt in the opposite direction. There can never therefore be an actual uniform and constant rate of profit; this can only ever be a provisional set of assumptions.

However, the relaxation of such assumptions lies beyond the ambit of Capital. It perhaps belongs to what would have originally been part of the book on wage-labour. Yet in chapter 11, and here and there in subsequent chapters, Marx may be seen to relax his assumption of the constancy of the rate of surplus-value, although not its uniformity, by, in this case, considering the effect on prices of a general rise in the general level of wages. But, as we shall now see, this relaxation is strictly limited and merely supplementary to Marx's principal line of theoretical development at this point. It does not go so far as to allow an analysis of class struggle since, like the variations in the rate of exploitation presented in his theory of the production of relative surplus-value in Volume I, it is always presumes a given and constant mass of use-values that consitute the means of subsistence of the working class. It thereby maintains the closing off of the insurrection of working class use-value against the dialectic of capital and value. It also, by retaining the assumption of uniformity of the rate of exploitation, maintains Marx's emphasis on the unity of capital - both to itself and against labour.

Let us then briefly consider the relaxation of the constancy of the rate of surplus-value that we find in chapter 11 a little more closely:

As we have noted earlier, Ricardo's labour theory of value foundered on the question of the effect of a general rise in wages on the general level of prices. Because Ricardo took the price of a commodity as being determined immediately by the labour embodied in its production, which was then divided up and distributed as profit, rent and wages in the process of exchange, he was led to the conclusion that a rise in wages would merely alter the distribution of the component parts of the value of the commodity; rising wages could not increase its value or price. Hence a general rise in wages would not raise prices but would instead be at the expense of profits. But, as Ricardo himself recognized, a general rise in wages would affect labour intensive industries to a greater degree than those that were capital intensive. In fact, in labour intensive industries prices would have to rise relative to those of capital intensive industries if capitalists were to obtain the general rate of profit, which would then imply an increase in the value of the commodities produced by such industries independent of the value embodied in them.

This breach in Ricardo's labour theory of value, which arose due to his failure adequately to distinguish the production of value from its distribution through exchange, and thus the mediation between value and its price-form, opened the way for the critics of a labour theory of value. What is more, it stimulated both bourgeois economists and many followers of Proudhon - the most notable being Weston as we have seen - to suggest the futility of industrial class struggle on the grounds that higher wages could only mean higher prices.

Having constructed his own labour theory of value, and shown how value and surplus-value regulate prices and profits, Marx, under the political imperative to address such arguments against industrial class struggle, both from within and outside the workers' movement, was obliged to reconsider his labour theory of value in relation to the failings of Ricardo and show how, although a general rise in wages will lead to alterations in the relative prices of commodities, it will at the same time be at the expense of the general rate of profit, rather than individual profit rates as such. But as Marx himself makes clear at the end of this short chapter, this point is secondary at this juncture in his exposition: The question merely was, how a general rise or fall in wages affect the assumed prices of production of commodities. This is but a very secondary question compared with other important points analysed in this Part. But it is the only relevant question treated by Ricardo, and, as we shall see, he treated it one-sidedly and unsatisfactorily. (Capital III, p. 204) Yet Marx's digression here is still highly restricted since he does not go as far as asking from whence the rise in wages comes from, and whether it is due to a rise in the minimum level of subsistence of the working class or as a result of class struggle. Marx is still able to maintain the implicit assumption of the value of labour-power as being more or less a physiological minimum as he had done since Volume I.

ii) The realization of all embodied labour as value Marx implicitly assumes that all the private and disassociated labour employed by individual capitals is realized and validated as social labour; that is, all labour takes the form of value. Or at least, Marx only considers that labour (potential value) which is actualized as value.(6) This assumption, that was imposed in Part I of Volume I and sustained throughout Capital, now emerges explicitly as a provisional point of closure within Marx's exposition. This becomes most evident with Marx's analysis of market value.

As we have seen, Marx is obliged to assume that the social division of labour is such that the mass of commodities produced in a particular branch of industry is sufficient to satisfy the social demand for such commodities at some price within the range of individual values which are formed within that branch of industry. With such an assumption all individual capitals will be able to sell all the commodities which they produce and therefore all the labour embodied in their commodities become realized as value in the money-form of prices. Further, all the surplus-labour extracted in that branch of industry becomes realized as surplus-value in the money-form of profit.

Now let us consider the case of an industry where the market price equals market value (taking the industry in isolation from all other industries). In this case, as we have seen, those capitals which have lower than average amounts of labour embodied in their commodities, and which therefore have low individual values, will make surplus-profits at the expense of the surplus-value produced by those capitals that embody higher than average labour in their commodities. Hence, ignoring the transfer of surplus-value owing to differences in the value composition of capital between industries, the total surplus-labour extracted in production equals the total surplus-value realized as profit for the industry as a whole.

Now let us take the example of an industry in which the market price is below the market value but which is still within the range of individual values. In this case those capitals with low individual values will find that they can not push prices as high as in the previously case if they are to sell their commodities. They therefore suffer a fall in their surplus-profits. Equally those with high individual values will be obliged to cut the prices of their commodities further below their intrinsic values in order to sell them, and thus their profits will fall even further. The surplus- profits made by the more efficient or better placed capitals now no longer cancel out the deficient profits made by their less efficient or less fortunate competitors. Yet still the total surplus labour produced in this industry is realized as profit. It is only that there is a net transfer of surplus- value out of this industry to other industries, over and above that required to iron out differences in the value compositions of capital, that these other industries can consequently obtain rates of profit above the general rate of profit.

Of course the reverse is the case if the market price is above the market value, but still within the range of individual values; in this case there will be a net transfer of surplus-value into the branch of industry in question. Hence all the surplus-labour extracted realizes its potential as surplus-value; all that the deviation of market prices does is to alter the distribution of the realized surplus-value as profit between different branches of industry. Thus for Marx at this point: Total labour embodied = Total value = Total price and further Total surplus labour = Total surplus-value = Total profits

Marx's principal point is that value, and hence surplus- value, is produced in the sphere of production and then distributed in the sphere of exchange. So that the total price realized in exchanged must equal the total value produced from production and consequently the total profit realized in exchange must also equal the total surplus-value extracted in production. This separation of production and exchange is made far more easier with the assumption that all labour realizes its potential as value and also that all surplus-labour is realized as surplus-value. Thus the first equalities outlined above are presumed in order to underline and make clear the second set of identities. But such equalities do not necessarily hold. In fact we may say that in general: Total labour embodied =/ Total value = Total price so that: Total surplus labour =/ Total surplus-value = Total profits

With the social division of labour unplanned not all of the disassociated labour embodied in commodities within the process of capitalist production will be realized as being abstract social labour by taking the value-form. That is, not all potential value will become actual value. This can be seen if we examine the relation of market price to market value a little further.

Let us consider the case where there has been, for some reason, a large influx of capital into a particular industry such that the market price required to clear the market of the commodities supplied lies below those prices corresponding to the range of individual values of the capitals operating in that industry. In such circumstances, either intra-branch competition will force the actual market price down to a point where even the most efficient, or most favourably placed capital will be selling at a price below that corresponding to the individual value of its commodities, or else the market price will be held up but commodities will remain unsold.

If commodities remain unsold it is obvious that the labour embodied in them fails to become validated as social labour. The value advanced to produce them consequently becomes devalorized. But such devalorization equally occurs if the market price is driven down so that all commodities that were produced are sold, albeit at a loss. With such an outcome, rather than those commodities that remain unsold being completely devalorized, all the commodities on being sold become partly devalorized to the degree that the market price is below that price corresponding to the lowest individual value.

In the previous examples, in which the market clearing price was within the range of prices corresponding to individual values, the deviation of market price from market value merely meant that labour was valorized at either a premium or a discount, so that a given amount of surplus labour - as surplus-value - corresponded to more or less profit. Now, insofar as labour is not valorized, surplus labour can not become surplus-value and therefore can not enter the process of redistribution as profit nor of the subsequent process of capitalisation and accumulation. It is lost! This loss implies both a destruction of capital and a rupture in its movement. But Marx, who at this stage is only concerned with emphasizing and delineating the unity of capital, cannot consider such questions, and so closes them off by provisionally assuming that all labour is validated as value (that is his value theory remains attenuated as a quasi- embodied labour theory of value). Marx is not specifically concerned with market prices as such at this stage; but he is concerned with market prices insofar as they serve a part in his analysis of the formation of production prices and the general rate of profit.

This has had important implications for those who have sought to set out a Marxian theory of price. A full Marxian theory of price would have to show the transformation of values into market prices as follows: Individual ==> Market ==> Production ==> Market Value Value Price Price Yet while Marx distinguishes market price from both market value and production price, his analysis is obliged to stop short at the transformation of market values into production prices. This is, as we have seen, necessary and sufficient for Marx's principal task at this point where he seeks to show how, through the transformation of values into production prices and the consequent formation of the general rate of profit, surplus-value is quantitatively transformed into profit; but it is itself insufficient for a theory of price. Such a theory can only be fully constructed once the process of valorization, considered here in Capital, is placed in relation to the converse process of devalorization. The failure to recognise this has all too easily led many commentators to misinterpret Part II of Volume III as a general equilibrium theory of price formation and thereby to reduce Marx to a classical general equilibrium theorist, which undoubtedly he is not! We shall return to this in more detail when we consider how the closure in Marx has been translated into a closure within Marxism in our concluding chapter; but here we must draw out one more particular point which concerns what we may call the assumption of the synchronocity of reproduction.

iii) The synchronocity of reproduction As we shall see, much has been made of Marx's 'error' in failing to transform input values into prices in his numerical schemas for the transformation of values into production prices, and this has led to the perennial controversy surrounding the so-called transformation problem since the beginning of this century. We need not examine this controversy in too much detail here, but in that it reflects Marx's mode of abstraction it is perhaps instructive in delineating his line of theoretical development at this point in Capital.

In his numerical schemas with which he illustrates the transformation of the values of capitals with varying value compositions of capital into divergent production prices, Marx omits to transform the inputs of these capitals into production prices. Thus on the one side of the equation we have values, on the other prices. But in reality capitalists do not buy thier inputs at prices corresponding to labour- values but at prices corresponding to production prices. These numerical schemas are therefore merely a first approximation. What is the importance of such an omission?

For many schooled in orthodox economic theory this is a serious omission. Consequently there have been numerous attempts to correct this 'error' by marrying these schemas of the transformation of values into production prices, which we find here in Volume III, with those concerning reproduction that are to be found in Volume II. This shot gunwedding has been undertaken with scant regard to the methodological context within which these two distinct sets of schemas were presented, and this, as we shall investigate further in our concluding chapter, has had important implications for the understanding of Marx and Capital.

If, as many have supposed in 'rectifying' this 'error', Marx was, at this point in Volume III, concerned with developing a theory of price, then indeed the failure to transform input values into production costs would have been a serious oversight. However, as we have already argued, Marx at this point in his exposition is primarily concerned with revealing the quantitative transformation of surplus-value into profit. This is a necessary step if he is then to show subsequently in Volume III how, as gross profit, surplus-value then further divides into profit-on-enterprise, interest and rent, which together comprise the distributional forms of revenue for the principal propertied classes.

It is true that, in order to show how the profits appropriated by individual capitals diverge quantitatively from the surplus-value that they expropriate, Marx has to relax the provisional identity of value and price. But only insofar as value becomes modified as production price; that is, only insofar as it can be shown that the convergent tendencies of the competition between these individual capitals reconstitute their unity as particular expressions of social capital as a whole through the formation of the general rate of profit. Marx is still concerned to emphasize capital as a unity, and is therefore still confined within his quasi- embodied labour theory of value.

Indeed, while price is now allowed to deviate quantitatively from value, value is still equated with embodied labour. But such an equality not only implies that all embodied labour becomes validated as value, but equally that all value can command embodied labour. It presupposes the unity of production and exchange as the unity of reproduction. Within such unity past, present and future labour are of equal value, they become interchangeable and homogeneous. We have an eternal circle of reproduction in which the relations of value and labour appear as if they were purely synchronic relations; as if they all occurred during the same period. With this eternal circle of reproduction all questions of the possibility of the failure of embodied labour to become value, and indeed of value to command new and old labour - and thus all questions of rupture and crisis - become banished. At least provisionally.

This is obviously necessary if Marx is to show that value and surplus-value are produced in production and then merely redistributed in exchange, since any questions concerning the loss or destruction of value would only complicate the matter. But for a theory of market price it would of been vital to stress both the convergent and the divergent tendencies of capitalist competition. That is, to show how labour may not become value, and how value may not be able to command labour, and hence how capital may become devalorized from one period to the next.

The failure to transform input values is merely symptomatic of the provisional assumption of synchronicity which closes off these diachronic considerations. Yet, in 'rectifying' Marx, such diachronic considerations, which point beyond his provisional emphasis on the unity of reproduction and his adherence to a quasi-embodied labour theory of value, are for the most part ignored. As a consequence Marx's reduction to general equilibrium economists is made complete.

However, this provisional assumption of synchronicity also has important implications now that we move on to consider his famous theory of the tendency for the rate of profit to fall.

C) The tendency for the rate of profit to fall Having examined both the qualitative and quantitative transformation of surplus-value into profit in Parts I and II, and shown how such transformations serve to conceal the essential relations of capitalist production from both the capitalist and the worker, Marx draws near to close of his theory of profit as such. Marx is at the point where he may proceed to consider the further transformation of surplus- value into the more specific forms of interest and rent. But we find Marx in Part III digressing somewhat to consider an issue that had been central to classical political economy - and one that was vital for a communist perspective on capitalism - the question of the tendency for the general rate of profit to fall.

From at least Adam Smith onwards classical political economists had been convinced that there was a long term tendency for the general rate of profit to fall. Since the capitalist economy was based on production for profit, the prospect of the eventual elimination of profit as the rate of profit fell to zero raised the question of the ultimate limits of the capitalist mode of production and consequently of the bourgeois society that rested on it.

For Adam Smith the tendency for the general rate of profit to fall arose from the growing competition amongst capitals brought about by the progressive accumulation of capital. As capital accumulated, the outlets for profitable investment would become exhausted. At the same time existing markets would become satiated with the ever increasing production of commodities brought about by the accumulation of capital. There would be an overaccumulation of capital. As a result, competition between firms to sell their output would intensify. Profit margins would have to be cut just to maintain existing sales. Hence profits across the economy would tend to fall. With this tendency for profits to fall across the economy as a whole due to increased competition, and with the mass of capital continuing to accumulate, then the general rate of profit would also have a tendency to fall.

However, Smith was at the same time able to identify a number of counter-tendencies to that of the falling rate of profit which held the promise of deferring its worse implications almost indefinitely. The two most important of these were: firstly, the growing social division of labour, which allowed for a decline in production costs to offset the trimming of prices; and secondly, the growth of foreign trade, which vastly increased the outlets for the profitable investment of domestic capital.

This optimistic view, as far as the bourgeoisie was concerned, was not shared by Smith's successor, Ricardo. For Ricardo the tendency for the general rate of profit to fall was not due to an increase in competition resulting from a relative overabundance of capital but from a natural barrier to capitalist accumulation that arose from the conditions of agricultural production. For Marx, in pressing home this more 'pessimistic' view, Ricardo came to the point of revealing the historical limitations of the capitalist mode of production. Yet in the end his ideological preconceptions prevented him from going the whole way. As Marx comments: Those economists, who, like Ricardo regard the capitalist mode of production as absolute, feel at this point that it creates a barrier itself, and for this reason attribute the barrier to Nature (in the theory of rent), not to production. But the main thing about their horror of the falling rate of profit is the feeling that capitalist production meets in the development of its productive forces a barrier which has nothing to do with the production of wealth as such; and this peculiar barrier testifies to the limitations and to the merely historical, transitory character of the capitalist mode of production; testifies that for the production of wealth, it is not an absolute mode, moreover, that at a certain stage it rather conflicts with its further development. (Capital III, p. 242) Thus, for Marx, Ricardo correctly identified the tendency of the rate of profit to fall as being an expression of the barriers confronting capitalist production but, as an ideological defender of the bourgeoisie, he refused to recognize these barriers as being historically specific to capitalism. Instead he sought to locate the source of such barriers in the natural, and therefore absolute, limitations imposed on the development of agricultural production.

Marx's principal task in taking up the issue of tendency for the general rate of profit to fall at this point was therefore to go beyond Ricardo's theory of profit to show how the barriers to the accumulation of capital were not of a natural origin but were historically specific to the capitalist mode of production itself. With such a digression Marx was able not only to engage with an issue that had been central to classical political economy but also, at the same time, to underline the historically specific character of the capitalist mode of production - a fundamental theme of Marx's critique of bourgeois political economy.

As has been previously discussed, Ricardo held rigidly to what we have termed an embodied labour theory of value. For Ricardo, the labour embodied in the production of commodities was identified with their value in exchange and hence directly determined the exchange ratios, the relative prices, at which all commodities exchanged with each other. Therefore Ricardo, in adhering to an embodied labour theory of value, took production and exchange as an immediate identity.

It is therefore no surprise that, having developed an embodied labour theory of value, Ricardo came to readily accept the propositions of what has become known as Say's Law.(7) Say's Law was first put forward by Ricardo's friend and fellow economist James Mill and was then taken up by various economists such as Say, from whence it obtained its name. Its principal proposition, common to all its versions, was that, since every purchase was at the same time a sale, total sales must equal total purchases. This was then taken to imply that their could be no general overproduction of commodities since production would always generate the revenue with which to purchase what had been produced. Further, with no overproduction of commodities there could be no overaccumulation of capital to produce them.

Of course this was not to deny the periodic overproduction of commodities in particular industries. But such overproduction would necessarily imply underproduction in other industries. Such localized overproduction would merely be the result of temporary disequilibrium brought about by sudden changes in tastes and fashion on the demand side and sudden changes in the conditions of production on the supply side. In time the competitive transfer of capital between industries would ensure the restoration of equilibrium across the economy as a whole.

For Ricardo, and his fellow adherents to Say's Law, insofar as general crises of over or under production did occur they were due factors external to the capitalist economy. They were seen to be the result of Natural disasters such crop failures and famines, or else to political factors, such as wars or excessive state interference in the workings of the economy. Apart from such externally originated events, Say's Law ensured a continuous unilineal development of the capitalist economy.

In the context of Say's Law the tendency for the general rate of profit to fall merely implied that the long term rate of profit, and with it the rate of accumulation and growth of the economy as a whole, would decline asymptotically towards zero. The tendency for the rate of profit to fall did not therefore imply crisis - in fact this was denied by Ricardo's adherence both to an embodied labour theory of value and to Say's Law - but rather posed an ultimate limit to the development of capitalism, and hence bourgeois society, with the eventual onset of economic stagnation. Indeed, while Ricardo and his contemporaries feared this eventual onset of economic stagnation as heralding the decadence of bourgeois society, and thus, for them, of civilization itself, a few decades later J.S. Mill, in taking up this perspective, looked forward to this eventual stationary state since he believed it would allow bourgeois society to free itself from its more lamentable aspects, such as greed and avarice, and allow the emergence of a more harmonious and stable society.

The growing class antagonisms and violent economic crises that became increasingly evident with the emergence of industrial capitalism following Ricardo's death had clearly shown for Marx that the development of the capitalist mode of production was not a smooth and progressive unilineal development, but was on the contrary a development that was marked by a repeated cycle of booms and slumps of increasing severity. Except for the pure bourgeois apologists of vulgar economics, crisis could no longer be considered as something accidental or external to the process of capitalist economic development, but was evidently an inherent and integral part of it.

For Marx, capitalism necessarily produced the barriers to its own self-development which then had to be forcibly overcome through the outbreak of periodic crises in the accumulation of capital. Yet in overcoming such barriers through crisis, capitalism could only reproduce them on an ever greater scale. Thus capitalism was driven through ever greater crises, each one raising the possibility of its eventual revolutionary overthrow with the consequent intensification of class conflict.

It was therefore necessary for Marx to show, not only that the tendency for the general rate of profit to fall was an expression of a barrier inherent in the very process of capitalist production and thus the accumulation of capital, but also that it was not simply an ultimate barrier, as it was for Ricardo, but rather a barrier repeatedly posited and then forcibly overcome in crisis. He was therefore set on course for a double movement of analysis and synthesis. An analytical movement to set out the tendency as such; and then a movement of synthesis to articulate this tendency with its counter-tendencies as a movement of crisis.

Yet, as we shall argue, in pursuing this double movement of analysis and synthesis on the question of the falling rate of profit, in raising the question of crisis, we find Marx once more moving tangentially to his principal line of theoretical development. Let us consider this in more detail.

i) Chapter 13: the law as such As we have seen Marx was led in Part III to undertake a double movement of analysis and synthesis. Firstly he sought to show, against Ricardo, how the falling rate of profit was a tendency inherent to capitalist production itself rather than an externally imposed natural barrier. Secondly he sought to show how this tendency was articulated with its counter- tendencies, so that it was not an ultimate barrier, as proposed by Ricardo, but a barrier repeatedly posited and overcome in the uneven and crisis ridden course of capitalist development. The first of these tasks we find dealt with in chapter 13 where Marx considers 'The law of the tendency for the rate of profit to fall as such'.

As Marx states concisely in Theories of Surplus-Value: Ricardo's theory rests on two false presuppositions: 1) The false supposition that the existence and growth in rent is determined by the diminishing productivity of agriculture; 2) The false assumption that the rate of profit is equal to the rate of surplus-value and can only rise or fall in inverse proportion to a fall or rise in wages. (TSV II, p. 439) Ricardo, following the 'esoteric' Smith, saw the total value of all commodities as breaking up into the revenues of the three great classes; profits, rents and wages. In terms of formulating the general rate of profit Ricardo did not therefore consider the category of constant capital. In terms of manufacturing industry where there existed only the capitalist and the worker, the value of commodities only had to be divided into profits and wages. It followed from this that any rise in the value of wages could only be at the expense of profits; just as any increase in the proportion of the value of a commodity falling to profits could only be at the expense of wages. Furthermore, since in aggregate any costs of the means of production (constant capital in Marx's terms) were taken to be resolved into profits and wages, the general rate of profit in manufacturing industry would simply equal what Marx terms the rate of surplus-value. That is we have (again in Marx's terms and with our previously defined notation): W = S + V and R = e = S/V From this it can be seen that if wages and therefore V rise relative to the value of profits then the rate of profit must fall.

However, in this 'pure' form of the capitalist mode production in which only manufacturing industry is considered there is no reason to suppose that wages should rise in the long term and hence there is no reason to suppose that there should be a long term tendency for the rate of profit to fall. For Ricardo, the workers in the long term would only be paid a wage to ensure their continued survival and reproduction. Any rise in wages above this subsistence level could only ever be due to ephemeral and exceptional circumstances. There was therefore no reason to believe from this perspective that the general rate of profit should have in any way a tendency to fall. In fact, it could be argued, that with the technological change reducing the value of basic necessities, the value of wages should tend to fall and so there should be a long term tendency for the general rate of profit to rise! So we can see, from Ricardo's perspective, that for capitalist production as such, as represented by manufacturing industry, there is no inherent tendency for the general rate of profit to fall. But manufacturing industry could not exist in isolation. It depended on agriculture to supply its raw materials and to feed its workers. But with agriculture came the natural barriers to production and the parasitical and unproductive class of landlords. It was with this articulation of manufacturing industry with agriculture that Ricardo came to locate the tendency for the rate of profit to fall.

As the economy grew, allowing an expansion in the population, the demand for food and raw materials produced by agriculture would grow. To meet this growing demand more inferior land would be brought into cultivation. This could be seen to have two important consequences. Firstly, as less and less fertile land comes into cultivation more and more labour has to be expended upon each additional plot of land to produce a given output of agricultural produce. Since for Ricardo it was the labour embodied in production on the most marginal land that determines the value, and hence the relative price, of agricultural produce, the price of agricultural commodities would tend to rise relative to those in manufacturing. Furthermore, given that workers spend a large proportion of their wages on food and similar agricultural products, this rise in the relative price of agricultural goods will produce a rise in the value of wages. With such a rise in the value of wages, as a consequence of higher food prices, the profits of capitalists both in agriculture and manufacturing would become squeezed leading directly to a fall in the general rate of profit.

Secondly, this general rise in agricultural prices, due to the diminishing marginal productivity of land, would not benefit the capitalist farmers. Although farmers producing on better than marginal land would be able to sell their produce at prices above their own individual values, this difference would be creamed off by the landlords in the form of differential rent and then squandered on idle consumption. Thus capitalist farmers would be unable to fully offset rising wages by taking advantage of the improved terms of trade with manufacturing industry. Hence their was no escape from falling rates of profits, either in manufacturing or in agriculture. Since profits provided the funds for productive investment, a falling general rate of profit directly implied a falling rate of capital accumulation and consequently a declining rate of economic growth.

Marx was keenly aware of the importance of agriculture's articulation with manufacturing industry in the concrete historical development of capitalism - which was shown in his detailed account and analysis of the Great Cotton Crisis of 1861-5 in chapter 6. But Marx's criticisms of Ricardo's false supposition with regard to rent and the diminishing productivity of land belong to his subsequent theory of rent. Marx's main line of attack in chapter 13 is Ricardo's second false supposition: the equating of the rate of profit with the rate of surplus-value.

Already, as we have seen, Marx had shown that the rate of profit diverged from the rate of surplus-value because it was calculated in terms of the total value advanced, including constant capital, rather than merely the value advanced as variable capital. With this distinction Marx was now able to show how the general rate of profit could fall even though the rate of surplus-value remained constant. He could accept Ricardo's viewpoint that the working class would be reduced to bare subsistence but still show how the tendency for the rate of profit to fall could arise from the very process of the accumulation of capital itself. He was therefore able to retain his critical bourgeois perspective, which reduces the working class to mere object, which was necessary to unravel the objective movement of the dialectic of capital.

How then does Marx proceed? As we have seen the rate of profit is determined by the rate of surplus-value mediated by the value composition of capital. We have the expression: r = e/ (k + 1) From this expression it can be seen that if the rate of surplus-value (e) is constant then the rate of profit may fall if the value composition of capital rises. This much we have seen already. But why should the value composition of capital rise?

Marx argues that with the development of capitalist mode of production the mass of means of production in sheer physical terms will tend to rise in relation to the physical amount of labour employed in production. As the labour process becomes mechanized and automated, labour will become expelled from production and replaced by machines and other means of production. This Marx terms as the tendency for the technical composition of capital to rise.

This tendency for the technical composition of capital to rise will then be reflected in a tendency for the value composition of capital to rise. With production becoming increasingly mechanized and automated, with more and more of productive use-values taking the form of means of production rather than labour-power, the capitalist will find that she has to advance more of her capital as constant capital rather than as variable capital. Thus, to this extent the ratio c/v (the value composition of capital) will rise.

This rise in the value composition of capital, caused immediately by a rise in the technical composition before any subsequent change in relative prices or values brought about by any consequent change in the relative productivity of labour, Marx terms a rise in the organic composition of capital. However, if the productivity of social labour in Department I is rising much faster than that in Department II, then the value of the means of production may well fall fast enough to offset its physical expansion relative to that of the labour-power alongside which it is employed. In this case the value composition having risen due the rise in organic composition of capital may then subsequently fall due this increased social productivity of labour in Department I.

However, this case is perhaps rather exceptional. In the long term Marx is able to argue that the tendency for the technical composition of capital to rise, which derives from the real subsumption of labour under capital, leads to a tendency for the organic composition of capital to rise, which then in turn leads to a tendency for the value composition of capital to rise also. With a constant rate of surplus-value, this then means that there will be a long term tendency for the rate of profit to fall.

From this we can see how the very drive of capitalist production to revolutionize the production process so as to increase the production of relative surplus-value gives rise to the tendency for the rate of profit to fall. The barrier to capitalist accumulation can now be located within the very process of capital accumulation itself. But is this tendency not compatible with the gradual decline in the rate of accumulation towards a stationary state that Ricardo and J.S. Mill envisaged? How can this tendency for the rate of profit to fall be reconciled with the crisis ridden movement of capitalist development? It is to answer such questions that Marx moves on to chapters 14 and 15.

ii) The counter-tendencies In elaborating his theory of the falling rate of profit in chapter 13 Marx follows on directly from the line of argument developed in Parts I and II. As we have seen, the distinction made between the rate of profit and the rate of surplus-value made in Part I allows Marx to go beyond Ricardo to show how the tendency for the rate profit to fall emerges out of the very process of capitalist production itself. Furthermore, the three sets of assumptions with which both Parts I and II unfold - a constant and uniform rate of exploitation, the realization of embodied labour as value and the synchronicity of the reproduction of capital - are all, for the most part, retained in chapter 13.

But as Marx remarks: If we consider the enormous development of the productive forces of social labour in the last 30 years alone as compared with all preceding periods; if we consider, in particular, the enormous mass of fixed capital, aside from actual machinery, which goes into the process of social production as a whole, then the difficulty which has hitherto troubled the economist, namely to explain the falling rate of profit, gives place to its opposite, namely to explain why this fall is not greater and more rapid. There must be some counter-acting influences at work, which cross and annul the effect of the general law, and which give it merely the characteristic of a tendency, for which reason we have referred to the fall of the general rate of profit as a tendency to fall. (Capital III, p. 232) Marx could not simply stop short at merely presenting a theory of the tendency of the rate of profit to fall, counterposed to those theories of classical political economy. He had to at least take up the 'opposite difficulty' and outline the various counter-tendencies which had prevented the rate of profit from collapsing completely. This he does in chapter 14 where he identifies and briefly considers in turn five counter-tendencies - which are in fact more or less the same counter-tendencies put forward by J.S. Mill. These being as follows: 1) The increasing intensity of exploitation - in part brought about by the repeated transformation of the production process. 2) The depression of wages below the value of labour-power. 3) The cheapening of the elements of constant capital. 4) Relative overpopulation. 5) Foreign trade.

These counteracting influences are presented as little more than a list - and a far from comprehensive list at that. They all belong to varying levels of abstraction and each one is considered in isolation. Marx makes no attempt to articulate them as a whole in relation to the tendency for the rate of profit to fall itself. It would seem that Marx merely intended to round off his digression into the theory of the tendency for the rate of profit to fall, and with this his theory of profit as a whole, by briefly indicating the possible counter-tendencies to such a tendency. Indeed, Marx admits that a full consideration of certain of these tendencies lie beyond: ...the general analysis of capital, but belong to an analysis of competition, which is not presented in this work [i.e. Capital]. (Capital III, p. 235) So it would seem that with this list of counteracting tendencies chapter 14 brings his presentation of his theory of profit to a close. Yet, at the same time, Marx has only gone halfway in his digression concerning the tendency for the rate of profit to fall. He has only considered the first moment of analysis that sets out this tendency in isolation. Chapter 14 is therefore at the same time a point of departure for a possible investigation into the second moment of synthesis in which this tendency is articulated with its counteracting tendencies.

Anxious to show how capital, through the tendency for the rate of profit to fall, posits itself as the barrier to its own self-development, not as an ultimate barrier but as a barrier which must be repeatedly overcome, Marx is led to take up this rather tangential investigation in chapter 15. An investigation which, as we shall see, directly raises the question of rupture and crisis.

What then do we find in chapter 15? Once more in the midst of investigation, we find ourselves working through various arguments. We find Marx taking up a line of argument only to break off to take up another line of attack. As a result this chapter 15 is a rather difficult chapter to comprehend. Yet by placing it within its broader context we may go some way towards making sense of this chapter and draw out the implications it has for understanding its tangential relation to the theoretical line of development that is presented in Volume III as a whole.

As we have already seen, Marx, in chapter 13, had shown how the tendency of the rate of profit to fall could be located within the very movement of capital itself rather than being a natural and externally imposed barrier, as Ricardo proposed. The problem for Marx now was to show how the tendency for the rate of profit to fall did not only express the fact that capital was a barrier to its own accumulation, but that as such it was an imminent barrier; a barrier that had to be repeatedly overcome rather than existing as some ultimate barrier, as it did with Ricardo.

To address this problem Marx, having already shown how the tendency for the rate of profit to fall arises out of the process of capital accumulation, now has to begin by examining how this process of accumulation is itself regulated by the tendency for profits to fall. And again it is against Ricardo that Marx seeks to tease out his solution.

As we have previously noted, for Ricardo the tendency for the rate of profit to fall leads to a gradual long term decline in the rate of capital accumulation, and hence of economic growth, until a point is reached where no new investments are made and capitalist society stagnates. The reason Ricardo puts forward for this is that profit is both the motivation and incentive required for productive investment. Without the prospect of making large enough profits capitalists will not invest and will therefore not accumulate capital. As Ricardo himself puts it: Their [the capitalists] motive for accumulation will diminish with every diminuation of profit, and will cease altogether when their profits are so low as not to afford them an adequate compensation for their trouble, and the risk which they must necessarily encounter in employing their capital productively (Ricardo, 1971, 141) So, as the rate of profit falls, profits fall, and therefore the motivation and incentive to investment will fall. As a consequence there should be a gradual slowing down of the accumulation of capital and economic growth until the point is reached when profits are so low no one will want to make any fresh investments and the economy stagnates.

But is a declining rate of profit immediately expressed in a concomitant decline in the rate of accumulation? Or are there factors which mediate the expression of this tendency in terms of the rate of accumulation? It is this question that we find Marx seeking to answer towards the beginning of chapter 15.

One of the first points Marx takes up is Ricardo's failure to make a clear distinction between the mass of profits, which in total represents the total mass of surplus-value, and the rate of profit. Even if the general rate of profit is falling the mass of profits may still be rising. Indeed as Marx states: With the development of the [production] process, which expresses itself in a drop in the rate of profit, the mass of surplus-value swells to immense dimensions. (Capital III, p. 244) So why is this distinction important for Marx? For Marx the inner driving force of capitalist production is not to provide the capitalist with a future income but the production of surplus-value and its accumulation as capital.

It must never be forgotten that the production of this surplus-value and the reconversion of a portion of it into capital... is the immediate purpose and compelling motive of capitalist production. It will never do, therefore, to represent capitalist production as something it is not, namely as production whose immediate purpose is enjoyment or the manufacture of the means of enjoyment for the capitalist. (Capital III, p. 243) Capitalists do not invest because of the prospect of profit as a future revenue, although this is what capitalist may intend, but because their very existence as capitalists depends upon it. Competition compels each and every capitalist to accumulate. Failure to expand brings with it the prospect of failure or take-over; the prospect of extinction as a capitalist.

So, up to a point, capitalists must continue to accumulate regardless of the general rate of profit. As the rate of profit falls the capitalists will be obliged to convert a larger and larger part of their surplus-value into additional capital to sustain accumulation and as a consequence forgo more and more of their profit as their own personal revenue.

But this is not all. As the rate of profit falls, and competition becomes more intense as a result, individual capitals will seek to buck the trend by appropriating surplus- profits. They will seek to introduce new technology to mechanize or automate production in an effort to reduce their costs below those of their competitors. By these very efforts to raise their own individual rate of profit they will not only act to accelerate the rate of accumulation but at the same time hasten the rise in the organic composition of capital and the consequent fall in the general rate of profit.

So, because the process of capitalist accumulation is driven, not by the incentive of future revenue and enjoyment of the capitalist but by the inner drive of capitalist production, a fall in the rate of profit will not lead immediately to a fall in the rate of accumulation, but rather the reverse! In fact we now have what we could term a positive feedback situation: the faster the general rate of profit falls the faster capital will accumulate and so the faster the rate of profit will fall.

But this is only up to a point. Surplus-value can only be accumulated while the rate of profit is positive. However great a capital is, it produces no surplus-value if its rate of profit is zero. Indeed as soon as the rate of profit falls to zero on additionally accumulated capital the further accumulation of surplus-value becomes impossible. The mass of capital accumulated now stands as a barrier to its own further expansion. It has reached the point of overaccumulation. We are on the verge of crisis. This presents us with two crucial questions: Firstly, why should capital step beyond this point? Why shouldn't the capitalists merely stop accumulating at this point where any further investment is a dead loss? And secondly, how is it possible for capital to overcome this barrier to its own profitable accumulation? Once the general rate of profit has fallen to more or less zero how can it be restored?

So we may then ask: is this point not an ultimate barrier? Have we not come to Marx's version of the stationary state (or even worse, the normal state of affairs of neoclassical economics where the marginal productivity of capital is zero and profit is therefore nothing but interest!)?

For the moment, at least in answer to the first of these questions, we can only appeal to the rather vague notion of the momentum of capital which takes it beyond this point to rupture and crisis. But before we seek a more detailed answer to either of these questions we must first return to the question posed by Marx in chapter 14: Given the enormous accumulation of capital in the historical development of the capitalist mode of production, and given that the fall in the rate of profit will tend to gather its own momentum, why hasn't the rate of profit collapsed long ago?

The answer to this question is that out of the very same process of accumulation of capital from which the tendency for the rate of profit to fall arises there emerges its principal counter-tendency. So what is this counter-tendency?

As we have seen, once capital imposes its real subsumption of labour in the process of production the accumulation of capital is driven forward by the ceaseless drive for the production of relative surplus-value. This demands the repeated transformation of the production process. Production must become ever more mechanized and automated; labour must become expelled; and so the technical composition of capital rises. As a result the organic composition of capital is driven upwards and so the rate of profit tends to fall.

But the drive towards the production of relative surplus- value is at the same time a drive which vastly enhances the productive powers of labour. The increasing mechanization and automation of production necessarily brings about an enormous increase in the productivity of social labour. Any given amount of labour will be able to produce ever greater amounts of real wealth. As a consequence we find that the labour required to produce a unit of use-value or real wealth will tend to fall over time.

Such a process of devaluation will apply to all the wealth produced out of capitalist production regardless of whether it is destined for consumption or for further production. Indeed it will include those use-values that serve both as the means of production and as the means of subsistence for the reproduction of labour-power, and which are consequently subsumed as constant and variable capital. We therefore find that the increasing social productivity of labour, brought about by the drive to accumulate capital, brings with it the devaluation of the productive elements of capital. In fact, we may say that the very process of the accumulation of capital is not only a process of capital as self-expanding value but, paradoxically, is also a process of its devaluation.(8)

This devaluation of capital acts as the principal counter- tendency to that of the falling rate of profit in two interconnected ways. Firstly, as we have already noted, the development of the productivity of labour in Department I may well offset the effect of any rise in the organic composition on the rate of profit. While the mechanization and automation of production may well lead to an increase in the mass of use- values that serve as the means of production relative to the labour employed in the labour process and thereby lead to a rise in both the technical, and organic composition of capital, the fall in the unit values of these use-values may be sufficient to offset this increase in their mass. In such a case the increase in the organic composition of capital will lead neither to a rise in the value composition of capital nor a fall in the rate of profit.

Secondly, and perhaps more importantly, is the devaluation of the means of subsistence and hence the fall in the value of labour-power and variable capital. With the value of labour- power, and thus variable capital, falling, the rate of surplus- value will rise. With less labour-time in a given working day spent reproducing the equivalent of the worker's labour-power, a greater proportion will be left for the capital as surplus- value. Indeed, as we saw in chapter 8, this is the very aim of the production of relative surplus-value.

If we recall our second expression for the rate of profit; namely: r = e/ (k + 1) we can see that any rise in the rate of surplus-value will run directly counter to any rise in the value composition of capital that may serve to depress the rate of profit.

So we can see how increases in the social productivity of labour in both Department I and in Department II counteract any tendency for the rate of profit to fall. Their counteracting effect taken together may be clearly seen if we recall our first expression of the rate of profit; namely: r = s/ (c + v) With the devaluation of both constant and variable capital, even if the mass of surplus-value remains the same, the rate of profit must rise.

So, on the one side we have the accumulation of capital increasing the organic composition of capital and thereby depressing the rate of profit; on the other we have this very same process increasing the social productivity of labour which, through the devaluation of accumulated capital, increases the rate of profit. How are these contradictory moments of capital accumulation articulated?

It has been argued, on the basis of the 'Okishio Theorem',9 that the tendency for the rate of profit to fall will be completely overwhelmed by its counteracting tendency, and is therefore of little consequence. Given that capitalist's seek to maximize their own individual rates of profit, then the 'Okishio Theorem' shows that no capitalist will seek to introduce a new technique of production which raises the organic composition of capital whose effect on the general rate of profit is not subsequently offset by a general rise in the rate of surplus-value. If this proposition is accepted then the tendency for the rate of profit to fall is completely annulled in its opposite. What we should have is not a tendency for the rate of profit to fall with the accumulation of capital, but, on the contrary, an overwhelming tendency for it to rise! We need not delve into the mathematical intricacies of the 'Okishio Theorem' here. Suffice it to say that, although this theorem makes a useful contribution in highlighting the counteracting tendency to that of the falling rate of profit, it is limited to a comparative analysis of static equilibrium values and disregards what we shall see is the crucial question of fixed capital.

The tendency for the rate of profit to fall and its principal counteracting tendency are not, for Marx, two independent factors that can simply be brought into an external and quantitative relation to each other. They are two contradictory moments of the same dynamic process: the process of capital accumulation. We must therefore find their modus vivendi; the means through which they coexist together within the unity of capital accumulation and thereby come to regulate it. This is the dialectical method; and indeed we can discern Marx at work on this very problem in chapter 15.

How then do these two tendencies find their modus vivendi? Firstly we must consider the devaluation of capital brought about by the increase in the social productivity of labour. This in itself, as we have already seen, implies a rising rate of profit. As capital becomes devalued so the rate of surplus- value and the rate of profit rises.

However, individual capitals do not appropriate the surplus- value they themselves have expropriated in production but rather appropriate part of the total surplus-value produced by social capital via exchange. Each and every individual capital makes its claim to surplus-value on the basis of the proportion of its own value to that of the total social capital. Consequently each individual capital will seek to preserve the value it has itself accumulated against the process of devaluation. That is, each individual capital will endeavour to assert the equivalence of the old values it has accumulated with any new ones that emerge as a result of the increasing productivity of labour. Only in this way can each individual capital defend itself as a given part of the total social capital and thereby maintain its share in the distribution of the total surplus-value as profit.

How then do individual capitals seek to preserve the values they have themselves accumulated? The initial answer to this is by converting their capital into money-capital - since as money capital is free from the multiplicity of concrete use- values that are at risk from the process of devaluation. (Of course money may itself become devalued but then it is in the same proportion for all capitals.) The problem is that industrial capital is obliged to take leave of the process of circulation, where it can readily be converted into money, to become productive-capital. Existing in the material form of productive use-values capital is under continual threat of devaluation.

If all productive capital took the form of circulating capital then this problem would be of little significance. Any changes in the productivity of labour between the start of a production cycle and its completion would, except for the longest of production cycles, be minor. The adjustment of the old structure of values with which production began to those prevailing when it finished would be small and present few difficulties to most capitals involved. What is more, since all productive-capital would have to enter into exchange to become capital-in-circulation at the end of each cycle of production, such an adjustment would be imposed through the law of value which demands that the value at which commodities exchange is determined by the abstract social labour necessary for their reproduction, not the labour used in their actual production (i.e. their new values not their old values).

However, once we admit the existence of fixed capital all this changes. A machine purchased ten years ago may have taken 1000 hours of social labour to build; but now, as a result of an increased productivity of labour, it may be possible to purchase a similar machine which has taken only 500 hours of labour to build. Thus its replacement value, its new value, is half that of its historical or old value. Yet it was this historical value which was the value actually paid for the machine in hard cash. And it is this old value that the capitalist reckons as part of her advance of money-capital and which she seeks eventually to recover, together with the requisite amount of profit, over the lifetime of the machine through the depreciation charges added to the value of the commodities it serves to produce.(10)

This insistence on the preservation of old values becomes even clearer if we run ahead of Marx and consider the case in which the capitalist buys the machine with borrowed capital. The money-capitalist who lent the original sum to buy the machine will not accept any protestations to the effect that because the replacement value of the machine has halved so must the interest payments she receives be halved. She will demand that the interest payments originally contracted are paid in full. The interest charges attributed to the machine will therefore remain based on its old historical value regardless of any subsequent change in its new replacement value. It will be a charge maintained within the depreciation charge of that fixed capital.

But what is true in the case where interest is paid to another capitalist for money borrowed to buy fixed capital is also true when the industrial capitalist advances her own money-capital and consequently retains both profit and interest. In both cases capitals will seek to preserve their own historic values as far as competition will allow.

What is more, capitals can do this because the value of capital that remains fixed as productive capital does not enter circulation to be validated as such. Instead its value as capital can only be imputed from the profit attributable to it from that part of its value that does circulate in any one period in the form of depreciation charges included in the value of the commodities it helps to produce. Of course intra- industry competition will tend to depress depreciation charges and hence the imputed value of fixed capital. But only to a small degree. If capitals were unable to sustain the imputed value of their fixed capital no one would risk investing in any industrial capital which had any significant proportion of fixed capital, since if they did they would face the prospect of the devaluation of their capital far outweighing any prospective profit. With all the capitals in a particular branch of industry in more or less the same boat, the formation of the market value will tend to impute the industry's average historic value of fixed capital.

With this preservation of the historic values of fixed capital the devaluation of capital due the increasing social productivity of labour becomes deferred. But this gives free play to the effects of the rising organic composition of capital on the general rate of profit. As capital accumulates on the basis of historic values the rate of profit will decline. Sooner or later the critical point is reached. Capital has accumulated to such a degree that it has become a barrier to its own self-expansion. Profitable accumulation is at an end.

But this is only on the basis of historic values. If capital was evaluated on the basis of replacement values, if the deferred counteracting effects of the rising productivity of labour could be brought into play, the rate of profit could be restored to health and profitable accumulation resumed. Indeed this is the way capital is able to overcome the falling rate of profit as a barrier to further accumulation. Through rupture and crisis, the long pent up devaluation of capital is released all at once. The old structure of historical values are forcibly reduced to that of the new. But this does not only mean the simple devaluation of capital but also its widespread destruction; its devalorization, bankruptcy and ruin.

As Marx describes it all: The contradiction, to put it in a very general way, consists in that the capitalist mode of production involves a tendency towards the absolute development of the productive forces, regardless of the value and surplus-value it contains, and regardless of the social conditions under which capitalist production takes place; while, on the other hand, its aim is to preserve the value of the existing capital and promote its self- expansion to the highest limit... The specific feature about it is that it uses the existing value of capital as a means of increasing this value to the utmost. The methods by which it accomplishes this include the fall of the rate of profit, depreciation of existing capital [devaluation], and development of the productive forces of labour at the expense of the already created productive forces.

The periodical depreciation [devalorization] of existing capital - one of the means immanent in capitalist production to check the fall of the rate of profit and hasten accumulation - disturbs the given conditions, within which the process of circulation and reproduction of capital takes place, and is therefore accompanied by sudden stoppages and crises in the production process. (Capital III, p. 249) So we can see that for Marx, unlike Ricardo, the falling rate of profit does not pose an ultimate limit to the accumulation of capital. Rather it is a limit that can be overcome, but only through rupture and crisis which can lead to a devalorization of capital sufficient to restore the profitable accumulation afforded by the increased social productivity of labour.

But the question still remains as before: why should capital step beyond the point of profitable accumulation? What is it that brings the onset of crisis that restores the possibility of profitable accumulation? Marx can give us no solution to such questions at this point. Indeed it is this very problem of crisis that constrains the development of Marx's investigation here, and which underlies the muddled and far from polished discussion that we find in chapter 15. So what is it that makes this problem so difficult?

As we have previously argued, the whole question of crisis runs counter to the emphasis that we find throughout the theoretical development of Capital. The emphasis is on the unity and persistence of capital. Of course the dialectic of capital is driven forward by contradiction. In positing the unity of capital, Marx has to repeatedly posit its disunity, and with this, at least implicitly, the possibility of rupture and crisis. But such disunity, such contradictions, always become resolved, at least provisionally, within the course of Capital. The question of rupture and crisis must therefore be repeatedly deferred. It is a question whose explication lies beyond the text Capital itself. Consequently, any pursuit of the question of crisis must become a digression that can only be tangential to the principal line of theoretical development that we find in Capital. A digression that can only run counter to the main drift of the preceding and subsequent text within Capital, and thus a digression that must ultimately break up or else face an impasse.

However, Marx's digression into the question of the fall in the general rate of profit not only ends up running counter to the main drift of Capital, but, more specifically, runs counter to his theory of profit which immediately precedes it. This becomes evident once we discern how in developing his theory of the tendency for the rate of profit to fall Marx is obliged to progressively abrogate the provisional sets of assumptions upon which his theory of profit as such was developed. This is particularly so with regard to the assumptions regarding the realization of labour as value and the synchronicity of the reproduction of capital.

As we have previously noted, Marx, in setting out his theory of profit as such, made the provisional assumption that the labour embodied in production becomes realized as value, at least in total. In maintaining this provisional commitment to a quasi-embodied labour theory of value in terms of the multiplicity of individual capitals, Marx was able to demonstrate how surplus-value, having been produced in the production process, is then socially distributed among individual capitals in the quantitatively and qualitatively distinct form of profit. As a consequence, each individual capital could be recognized insofar as it is a particular expression of the totality of social capital.

But, just as Ricardo's embodied labour theory of value led Ricardo to adopt Say's Law and thus deny the possibility of overaccumulation and overproduction, so Marx's provisional adoption of a quasi-embodied labour theory of labour gives rise to a similar preclusion. So long as Marx takes as given that all labour performed in production will be realized as value he can admit neither any overaccumulation of capital, and hence a general crisis of overproduction, nor the consequent devalorization of capital that arise once the overproduced commodity-capital cannot be sold. For Marx's theory of profit as such, crisis is therefore provisionally precluded.

Yet, as we have seen, Marx's theory of the falling rate of profit must grasp the accumulation of capital as not only as a process of valorization, as a process of storing up alienated objectified labour, but also as a process of devalorization. As a process in which accumulation is accelerated to the point of overaccumulation where capital becomes a barrier to its own further development. A barrier that can only be overcome through the mass devalorization of capital by means of rupture and crisis. Thus the development of the theory of the falling rate of profit demands the abrogation of this very assumption upon which Marx's theory of profit has hitherto unfolded.

But furthermore, as we have also noted, Marx's theory of profit rests on the further assumption of the synchronicity of reproduction. This assumption implies that values in one period can be immediately equated with those in another as if they were values of the same period. Yet such an assumption, so vital for the clarity of Marx's exposition in Parts I and II, is untenable once Marx begins to address the question of the increasing productivity of social labour. As we have seen, with the increasing productivity of social labour comes the devaluation of capital. A devaluation which becomes most forcibly expressed in the contradiction between the imputation of past historic values of fixed capital and present replacement values. We have seen how it is vital for Marx to grasp such a contradiction if he is to articulate both the tendency and counter-tendency for a falling rate of profit in the dynamic regulation of the accumulation process of capital. Yet it is a contradiction directly precluded by the assumption of synchronicity of reproduction.

Yet not only is Marx's theory of the falling rate of profit propelled towards an abrogation of two of the three fundamental assumptions upon which he developed his theory of profit, indicating that the theory of the falling rate of profit is a tangential digression from his principal line of theoretical development in Capital, but that it also presupposes much which has yet to presented.

Firstly, as we have already noted, Marx runs into an impasse with regard to the question of why capital should step beyond the point of profitable accumulation. It would appear that an answer to this may lie in the divergence of the readily apparent monetary relations, expressed as money denominated prices and profits, and the underlying value relations. With this divergence it would seem possible that the phenomenal monetary relations, with which capitalists are immediately concerned, may disguise the precise point of overaccumulation. Capitalists may still be making ample money-profits, and thus be maintaining the rate of capital accumulation, even though the underlying value relations no longer justify such profits or accumulation. Sooner or later, however, value must reassert its regulation over money-prices and the illusion of profitable accumulation will then be revealed as a vast overaccumulation of capital.

However, the development of this prima facie argument presupposes an analysis of the divergence of the accumulation of money-capital and productive-capital. An analysis that, as we shall see, can only follow Marx's subsequent exposition of interest bearing capital and fictitious capital which is contained in Part IV. An exposition that necessarily presupposes Marx's theory of profit as such. But it also presupposes an analysis of competition.

So, secondly, to understand how prices may diverge from values it is necessary to understand not only the operation of convergent competition, which is set out in Marx's theory of profit and gives rise to the transformation of values into production prices, but also divergent competition. But more specifically, it is necessary to understand how capitalist competition gives rise to the imputation of values to fixed capital. This is vital, as we have seen, in determining the degree to which the devaluation of capital brought about by the growing productivity of social labour is deferred, and thus the degree to which the tendency for the rate of profit to fall is given free play. But a full analysis of competition, as Marx repeatedly mentions in passing, does not belong to a 'general analysis of capital' - that is to Capital - but rather it belongs to its 'eventual continuation'. It belongs, along with the question of crisis, to a work Marx promised but never even began.

So, once again, as in chapters 4, 5 and 6, we find Marx taking up an excursus that eventually becomes a tangential investigation which reaches an impasse with the question of crisis. The question of crisis remains premature. Marx has yet to develop the further transformations of surplus-value that arise with the division of gross profit into interest, profit-on-enterprise, and rent. It is to this line of theoretical development that Marx now returns with opening of Part IV of Volume III.

II) The division of profit into interest and profit-on- enterprise a) Capital as function and as property Marx's investigation into a theory of crisis which developed from his theory of the law of the tendency for the rate of profit to fall was, as we have seen, premature. Capitalist crisis necessarily involves, and becomes most apparent, in terms of money and credit. Yet it is only now, in Part IV of Volume III, that Marx comes to treat such questions of money, credit and finance. Marx explains why his theory of interest must come after his theory of the falling rate of profit as follows: We intentionally present this law [the tendency for the rate of profit to fall] before going onto the division of profit into different independent categories. The fact that this analysis is made independently of the division of profit into different parts, which fall to the share of different categories of people, shows from the outset that this law is, in its entirety, independent of this division, and just as independent of the mutual relations of the resultant categories. (Capital III, p. 214) Marx had sought to show that the rate of profit would tend to fall regardless of the proportions into which the total gross profit or surplus-value was divided. Not only did Marx wish to show that the rate of profit could fall independently of rising rents (contra Ricardo) but also to avoid the confusion rampant in bourgeois political economy concerning profit and interest which could have only clouded his exposition at this stage.

Having set out his theory of the tendency for the rate of profit to fall, Marx, in returning from his tangential digression into the theory of crisis, was now clear to address the question of the division of the gross profit into interest and profit-on-enterprise and the confusion this division produces in the minds of the bourgeois economists. To do this Marx sets out in Part IV to distinguish the functional forms that capital takes on and which become apparent and separated out with the functional specialization of various individual capitals in the overall circuits of industrial capital.

Up to this point each individual capital has been taken to encompass an entire individual circuit of capital. Each capitalist has been assumed to oversee the buying of all the means of production and the hire of all the labour-power that is required, their employment and combination in production, and the sale of the resulting product to the consumer of the final product. However, the complexity of these various tasks leads to the specialization of various individual capitals into the particular stages and functions of the circuit of industrial capital. A division therefore emerges between those individual capitals which specialize in the production of surplus-value and those which specialize in the realisation of that surplus-value. A broad functional division consequently emerges between industrial (or, more strictly speaking, productive) capitals and commercial capitals.

Commercial capital intervenes in the circuits of industrial capital so as to relieve industrial capital of some of the operations involved with capital-in-circulation. This is usually achieved by a transfer of control or ownership of the capital in the form of money or commodities. This transfer of ownership or control does not alter in any way the essential movement of capital through its circuits, but it does alter the mode of appearance by altering the apparent basis for the various claims on the surplus-value generated out of such movement.

Marx isolates two pure forms of commercial capital: merchant capital and money dealing capital. Merchant capital is concerned solely with the buying and selling of commodities. The merchant capitalist buys the industrial capitalist's commodities and then seeks to sell them at a profit. In this transaction the industrial capitalist is relieved of the task of selling to numerous customers and is able to realize the value of her commodities sooner than otherwise would be the case, which may then allow a faster turnover of her capital. In return the merchant capitalist gains a claim for part of the surplus value produced and realised as the basis for her profit.

It appears that the merchant capitalist buys commodities from the industrial capitalist at their selling price and then makes her profit by simply adding a mark up to this selling price. So it then seems as if the merchant capitalist sells commodities above their values or production prices. It is from such an appearance that it is often concluded that the profit of the merchant capitalist arises purely out of the process of exchange and the circulation of commodities and has nothing whatsoever to do with production. On the basis of such a conclusion the merchant capitalist is then often accused of being an unnecessary, and even parasitical 'middle- man' that makes her profit at the expense of the 'hard working' industrial capitalist on the one side and the hapless consumer on the other. However, in reply, the merchant capitalist may point out that, like production, the process of circulation involves costs and overheads that add to the costs of the commodity and which have to be covered in her mark up over the original selling price. Furthermore, these costs and overheads, along with the sums required to purchase the commodities from the industrialist, have to be advanced just as the industrial capitalist must advance capital in order to produce anything. The merchant capitalist is therefore able to argue that she acts like any other capital and can therefore make an equally just claim for profit as a result.

For Marx, however, this defence of the merchant capitalist's claim for profit is, like its denial, one-sided. Merchant capital is a functional form of capital and as such it does perform a function in the circuits of industrial capital. However it does not, in its pure form, produce any surplus- value and therefore has no direct claim to profit. Of course both living and dead labour will be employed by the merchant capitalist in her operations; but such labour insofar as it does not transform the use-values of the commodity is not productive and therefore does not produce value. Of course, actual concrete merchant capital will employ productive labour insofar as the production continues into the time of circulation, with, for example the transportation of commodities and their subdivision into consumable units. But in the pure function of buying and selling commodities the merchant capitalist does not produce any value and therefore cannot produce any surplus-value. The costs involved in the buying and selling of commodities are simply deductions from the surplus-value. They are costs the capitalist class has to bear in order that commodities may freely circulate.

So, if the merchant capitalist is unable to add any value to the commodities she buys and sells, then she must sell them at their value, or production price. The question that then arises is: where does the merchant capitalist's profit come from?

The answer to this becomes clear as soon as it is remembered that the merchant capitalist merely carries on the circuit of industrial capital under a different title of ownership. In the absence of the merchant capitalist the industrial capitalist would be obliged to undertake the task of selling her commodities to their final consumers. The industrial capitalist would have to bear the costs this involves and would have to tie her capital up in the form of commodities for the time it takes to complete their sale. Such costs involved in the full completion of the circuit would have to be deducted from the surplus-value that is realized with the ultimate sale of these commodities.

With the intervention of merchant capital these deductions from surplus-value are made at the point of sale to the merchant capitalist. The industrial capitalist sells her commodities at a discount, deducting from the price that part which would have covered the costs of circulation. The merchant capitalist, having bought the commodities at a discount, is then able to sell them at their value, or production price, just as the industrial capitalist would have done. Thus the merchant capitalist is able to cover her costs without selling at a price above that corresponding to the value of the commodity.

But, if this is so, the question still remains as to where the merchant capitalist's profit comes from.

The merchant capitalist's profit is derived from two sources. Firstly, by specializing in the buying and selling of commodities the merchant capitalist will be able to reduce the costs of circulation to a far greater degree than the industrial capitalist who is principally concerned with production. Thus there is a difference between the discount the industrial capitalist is prepared to make to cover the deductions in the surplus-value required to pay for circulation costs and the deductions the merchant capitalist actually makes. It is from this difference that the merchant capitalist is able to make her profit.

Secondly, by selling her commodities to the merchant capitalist the industrial capitalist is able to realize her commodity-capital as money-capital sooner and is thereby able to turn capital over faster. With a faster turnover of capital her annual rate of profit will be that much greater, and to achieve this the industrial capitalist may well be prepared to make a further discount in the selling price to the merchant capitalist over and beyond that required to cover the cost of circulation. Again this extra discount provides the merchant capitalist with the basis for her profit.

So, while merchant capital produces no surplus-value, it is able to lay claim to profit by intercepting surplus-value in the process of its realization in the form of commercial profits. The different basis of commercial profit in the realization of surplus-value, rather than in its production, becomes obscured, however, by the competitive pressures which tend to equalize the rates of profits between merchant capital and industrial capital. This is also true of the second form of commercial capital - money dealing capital.

Money dealing capital is the elementary function of banking capital. From its beginning capitalism has required the handling of large amounts of money. As we saw when we considered Volume II, there are several points within the circuits of both capital and revenue where money may become hoarded and then dishoarded. Such operations of hoarding and dishoarding require the services of money dealing; the payment for commodities or services, security arrangements, accounting and so forth. Such operations are often costly for individual capitals to undertake for themselves since they often require relatively large overheads. Consequently certain capitals emerge which specialize in money dealing and which, by dealing other people's money, can spread these overheads over a large number of operations. As a result the deductions which would have to have been made from surplus-value to pay for the costs of the circulation of money can be greatly reduced. Thus, like the merchant capitalist who makes her profits by minimizing the costs of circulating commodities, the money dealing capitalist makes her profit by minimizing the costs of the circulation of money.

However, the money dealing capitalist only takes control of idle money. She does not make her profit by buying at below value and selling at value but from certain fixed charges and commissions made on her operations on behalf of other capitalists. Thus the basis of the money dealing capital's profit is far more transparent. But such transparency is usually negated by the fact that money dealing capital is closely alloyed with the other distinct form of banking capital - interest bearing capital.

Although commercial capital, whether it is money dealing capital or merchant capital, derives its profits from the realization of surplus-value rather than its production, it still has something in common with industrial capital in that its profits arise from particular functions within the overall circuit of industrial capital. Both industrial and commercial capital derive their profits by performing operations that are necessary for the overall movement of capital. Their profits are operating profits; 'profits-on-enterprise'. This is not true of interest bearing capital - which Marx now comes to consider in Part V of Volume III.

In order to develop the forces of production at its disposal, capital seeks to concentrate the means of production on an ever larger scale. In exploiting every economy of scale, in intensifying the division of labour, the minimum unit of productive capacity in most industries tends to grow. The consequent expansion in the scale of production means that the minimum value of capital necessary to set a particular circuit of industrial capital in motion will also tend to grow ever greater. Sooner or later the mass of capital required to set up or expand production will go beyond the resources of even the most prosperous capitalist. As a result more and more industrial capitalists are obliged to borrow money rather than merely employ their own. This is done by drawing together the numerous idle hoards of money of the population at large; either directly by forming joint stock companies and the sale of shares, or indirectly by bank loans in which the bank draws together the money deposited with it and lends it out to the industrial capitalist.

This lending of money, not merely as money but as money- capital, constitutes interest bearing capital, which for Marx forms the basis of interest in the capitalist mode of production.

In order to borrow the money-capital required to set the industrial circuit of capital in motion the industrial capitalist is obliged to surrender part of the subsequently produced surplus-value as interest to the lender. Thus, for the industrial capitalist who operates with borrowed money, part of the gross profit has to be paid out in the form of interest, leaving the remainder as profit-on-enterprise. What is more, as soon as the borrowing of capital becomes widespread this division of gross profit becomes firmly established as a quantitative division of every industrial capital's profit. Even those capitalists who do not operate with borrowed money-capital will still divide their profits between the interest they could have earned if they had lent their money-capital to some one else, and that part resulting from their own use of it - their profit-on-enterprise. The only difference being that in such cases the industrial capitalist pockets the interest for herself.

This division of gross profit between profit-on-enterprise and interest is not merely confined to industrial capital. Commercial capitalists, in response to the growing scale of production and the opportunities for their own economies of scale, will require ever larger advances of money-capital and will therefore be obliged at some point to borrow money- capital. Thus their gross profits will also divide up between profit-on-enterprise and interest. Hence interest bearing capital becomes opposed to both industrial capital and commercial capital. It comes to define a distinct faction of the capitalist class whose income derives solely from its ability to extract interest by the mere fact of ownership or control of money-capital.

Interest bearing capital appropriates surplus-value in the form of interest by mere fact of passive ownership rather than from any active function within the process of production or circulation of capital. As Marx states: Interest bearing capital is capital as property as distinct from capital as function. (Capital III, p. 379) It therefore appears that interest bearing capital appropriates interest completely independently of either production or circulation. Even the industrial or commercial capitalist who owns the capital she employs will still come to regard that part of her gross profit which is counted as interest as arising as some 'natural' reward for the mere ownership of money-capital. A perspective reinforced to the degree that such a capitalist may withdraw from production or exchange and simply lend her money out as interest bearing capital. Only that part of profit made over and above interest appears as a result of the functioning of capital; that is, as profit-on-enterprise.

So, for all capitalists, interest bearing capital becomes opposed to profit-on-enterprise. This opposition may become so stark that it overshadows that between profit and wage- labour. As Marx comments: Firstly, assuming the average profit to be given, the rate of the profit of enterprise is not determined by wages, but by the rate of interest. It is high or low in inverse proportion to it.

Secondly, the functioning capitalist derives his claim to profits of enterprise, hence the profit of enterprise itself, not from his ownership of capital, but from the function of capital, as distinct from the definite form in which it is only inert property. This stands out as an immediately apparent contrast whenever he operates with borrowed capital, and interest and profit of enterprise therefore go to different persons. The profit of enterprise springs from the function of capital in the reproduction process, hence as a result of operations, acts by which the functioning capitalist promotes this function of industrial and commercial capital. But to represent functioning capital is not a sinecure, like representing interest bearing capital.

On the basis of capitalist production, the capitalist directs the process of production and circulation.

Exploiting productive labour entails exertion, whether he exploits it himself or has it exploited by someone else on his behalf. Therefore his profit of enterprise appears to him as distinct from interest, as independent from the ownership of capital, but rather as the result of his function as a non-proprietor - a labourer. (Capital III, p. 379) In fact this opposition may become so stark that in seeing herself as a labourer the capitalist comes to see her profit- on-enterprise as not a profit at all but a wage! As Marx proceeds to explain: He [the functioning capitalist] necessarily conceives the idea for this reason that his profits of enterprise, far from being counterposed to wage-labour and far from being the unpaid labour of others, is itself a wage or wages of superintendence of labour, higher than a common labourer's, 1) because the work is far more complicated and 2) because he pays it to himself...The fact that his function as a capitalist consists in creating surplus- value, ie unpaid labour...is entirely lost sight of....

He forgets, due to the antithetical form of the two parts into which profit, and hence surplus-value, is divided, that both are merely parts of surplus-value, and this division alters nothing in the nature, origin, and the way of existence of surplus-value. (Capital III, p. 380) The division of gross profit into interest and profit-on- enterprise thereby gives rise to the ideological confusion that profits are merely wages of superintendence and that as a consequence there is no essential difference or conflict between the productive capitalist and the worker. But this is not all. Alongside this confusion emerges that which surrounds interest.

Interest appears to stand completely outside the process of the reproduction of capital. It seems not to emerge from the process described by the formula for the circuit of money- capital M-C...P...C'-M' but merely as M...M'. The expansion of interest bearing capital seems to be simply the innate property of a thing - that is of money - rather than an aspect of a social process. Capital thus appears to grow as if it were a natural process like a tree or a plant, rather than from the social process of its exploitation of labour.

It is with interest bearing capital that capital reaches its most fetishized form. All the processes involved in the production and realization of surplus-value appear collapsed in the geometric progressions of interest over time. Interest presents itself as the inalienable right of capital to be paid regardless of who may starve as a consequence.

b) Digressions into money and crisis So, in Part IV and the opening chapters of Part V Marx isolates the pure forms of commercial capital - money dealing capital and merchant capital - which then allows him to counterpose interest to profit-on-enterprise. In doing so Marx is able to uproot the misconceptions which arise in the minds of bourgeois economists that profit is merely a wage on the superintendence of production while interest is some innate property of capital as a thing independent of the exploitation of labour. Furthermore, Marx is able to locate and define the objective and material basis for the three principal and evident factions of the capitalist class.

Having shown how surplus-value is transformed into the forms of interest and profit-on-enterprise, and how this transformation appears within the everyday perceptions of bourgeois ideology, it would appear that Marx has, at this stage, fully elaborated his theory of interest insofar as his 'general analysis of capital' would allow. As he argues in chapter 22, the actual determination of the rate of interest depends on competition; it arises not from the production and circulation of value as such but from the division of surplus- value which may depend on a whole range of contingent factors that govern the supply and demand of money-capital. So any further investigation into the quantitative determination of the actual rate of interest would seem to lie in Marx's much promised work on competition rather than within the volumes of Capital. We may therefore conclude that with the conclusion of chapter 24, where he completes his exposition of interest bearing capital, Marx brings his theory of interest to a (provisional) close.

However, Marx does not stop here; he does not immediately move onto his analysis of the transformation of surplus-value into rent. On the contrary, a further 200 or more pages are devoted to the question of interest and credit. For much of these 200 or so pages we find Marx quoting at great length the views of various contemporary economists and commentators regarding the questions of money, interest and financial regulation, which are interspersed with Marx's own critical comments and observations. As Engels notes in his introduction to Volume III: The greatest difficulty was presented by Part V which dealt with the most complicated subject in the entire volume. And it was just at this point that Marx was overtaken by one of the above mentioned serious attacks of illness. Here, then, was no finished draft, not even a scheme whose outlines might be filled out, but only the beginning of an elaboration - often just a disordered mass of notes, comments and extracts. I tried at first to complete this part, as I had done to a certain extent with the first one, by filling in the gaps and expanding upon passages that were only indicated, so that it would at least approximately contain everything the author intended. I tried this no less than three times, but failed in every attempt, and the time lost in this is one of the chief causes that held up this volume. At last I realised that I was on the wrong track. I should have had to go through the entire voluminous literature in this field, and would in the end have produced something that would nevertheless not have been a book by Marx. I had no other choice but to more or less cut the Gordian knot by confining myself to as orderly arrangement of available matter as possible, and to making only the most indispensable additions. (Capital III, p. 4) So what do we find in these 200 or so pages that deal with the 'most complicated subject in the entire volume'?

Throughout the remaining chapters of Part V, Marx reviews in detail the opposing views involved in the controversy which surrounded the 1844 Bank Act, and, in the course of this review, we can see Marx drawing out the basis for a general theory concerning the relationship between the accumulation of real productive capital and money-capital. To understand the significance of this review of the 1844 Bank Act controversy we must examine the issues at stake in a little more detail, and this requires that we return to Ricardo and his theory of money.

As we have already noted, Ricardo's theory of accumulation precluded the possibility of crisis internal to the development of the capitalist system itself. Apart from external factors, such as wars or famines, the development of the capitalist economic system could be expected to be smooth and untroubled until it reached the ultimate point of stagnation due to the long term tendency for the rate of profit to fall. This preclusion of crisis rested, as we have previously noted, on the Ricardo's embodied labour theory of value which implied that there could not be any fundamental divergence between the money relations of the economy and the underlying value relations of production. For Ricardo, money, being merely just another commodity, was neutral; it merely facilitated the exchange of commodities and did not itself substantially affect the relations of such exchange.

Following Ricardo's death, and the establishment of the Ricardian school as economic orthodoxy, it became apparent that both Ricardo's theory of money, and his theory of accumulation, had serious empirical weaknesses. Firstly, the cyclical crises that beset capitalist development with increasing severity from the 1820s onwards could no longer be denied nor explained away by means of external factors. Secondly, these crises were first and foremost financial crises. Far from being just another commodity, or a mere neutral facilitator of exchange, money appeared as the root cause of economic crisis.

So what was it about money that was causing these ills of capitalist development which seemed to refute Ricardo's prognosis? Economic orthodoxy looked for a solution to Ricardo himself.

In his intervention in to the bullion controversy of the early 1800s, which concerned the increase in the nominal price of gold bullion, Ricardo had warned of the consequence of the unrestrained issue of paper money. It was the increase in paper money, which was a direct consequence of the deregulation of the issue of banknotes, that had led to the fall in the real value of money and hence the increasing nominal price of gold bullion. Ricardo did not make explicit any link between the inflation of the nominal price of bullion and financial crisis, although it is clear that both he and his contemporary adversaries felt that it was an unsound outcome that ought to be avoided if at all possible. His successors, however, were quick to make the connection between the unrestrained issue of paper money, the decline in the value of money, and the periodic outbreak of financial crises. For them, like Ricardo's policy prescriptions with regard to the bullion controversy, the solution was to limit the issue of paper in accordance with the nation's gold reserve.

It had been on the basis of such a policy prescription that the 1844 Bank Act had been drawn up and passed into law. By rigourously restricting the issue of banknotes by the amount of gold held by the Bank of England this act sought to overcome, or at least mitigate, the periodic financial crises besetting British capitalism. But the 1844 Bank Act failed to avert financial and economic crises, and twice, before its eventual repeal, the government, at the height of such crises, was obliged to suspend its provisions in order to avoid the complete devastation of British industry. As a result this act stirred up a fierce controversy amongst bourgeois economists, bankers and politicians.

The advocates of the 1844 Bank Act, chief among them being the banker Lord Overstone, based their arguments on what became known as the Currency Principle. This Currency Principle sought to update Ricardo's theory of money so as to make explicit the link between the unrestrained issue of paper money and economic crisis, and thereby determine the correct policy with regard to the control and regulation of money. To consider their position it is therefore necessary to look at Ricardo's theory of money a little closer.

According to Ricardo, metallic money was inherently self- regulating so that the value of money, and hence the general price level, would be broadly stable. Any changes in prices would therefore be due to changes in the real relations that exist between commodities. The fundamental reason for this was that metallic money was a commodity, which, like any other commodity, had an absolute and intrinsic value dependent on the amount of labour embodied in it. Thus in the long term, given that the conditions of production of metallic money remained more or less the same, the value of money would be given and it would be able to act as a constant standard of value with which all other commodities could be exchanged.

However, Ricardo recognized that in the short term there may arise quantitative imbalances between the amount of metallic gold produced and put into circulation and the amount of money required to circulate all the other commodities at prices corresponding to their intrinsic values. Of course such imbalances could be corrected like any other imbalances in the production of a particular commodity through the competitive transfer of capital between branches of industry. If there was too much metallic money, such as gold, being produced, for example, then the general price level would rise, reducing the relative price of gold. The production of gold would become less profitable, less efficient gold mines would close down and, as a result, the amount of gold-money in circulation would diminish, thereby correcting the imbalance between gold- money and all other commodities.

However, as Ricardo was aware, this self-regulating mechanism was not very efficient. Firstly, unlike most other commodities metallic money was not immediately consumed with the completion of the act of exchange. In fact metallic money had to remain in circulation over numerous transactions and was only withdrawn to the extent that it wore out. Consequently the production of metallic money served only to replenish worn out coinage and the relatively small increase in the amount of money required to accommodate economic growth. This meant that changes in the production of metallic money would be very small in relation to any imbalances which may arise between the amount of it in circulation and that required to circulate commodities at prices corresponding to their values. Only over the very long term would changes in the production of metallic money be able to assert themselves and restore the value of money. Secondly, in the case of a country with little or no precious metals production there arose formidable barriers to the operation of this particular self-regulating mechanism since any transfer of capital would have to surmount international frontiers.

So in the case of metallic money the normal self-regulating mechanism of commodity production was weak and only fully operated at a global level. To this extent Ricardo came to adopt Hume's quantity theory of money. The value of money, and thus inversely the general price level, would be determined by the quantity of money in circulation.

However, with the development of free trade across the world, Ricardo was able to identify a further self-regulating mechanism, which was far stronger than the competitive transfer of capital in and out of gold production, and which operated through the nation's balance of payments.

Any rise in the general level of prices due to a relative excess of gold in circulation, it was argued, would lead to a flood of commodities imported from abroad, exploiting the comparatively high prices. This would then result in an outflow of gold as payment for these commodities. Contrawise, a fall in the general level of prices would lead to an increase in exports and thus to an inflow of gold into domestic circulation. So through the balance of payments any imbalances in the amount of money in circulation would become corrected.

Given that gold was the basis for most major national currencies and served as the international means of settlement, Ricardo could argue that the international movement of gold in response to trade imbalances served as a rapid an effective regulator for the value of money throughout the world. As soon as the general price level of any particular economy stepped out of line, international traders would be quick to take advantage by diverting trade in order to gain profits or avoid losses. There would not be the delays which were required for the transfer of productive capital and changes in the level of gold production, only those involved in buying and selling and making the necessary shipments of gold and commodities.

So for Ricardo, the general level of prices, and thus the value of money, was, in any particular country, directly determined by the relative quantity of money to all other commodities, and this quantity was itself regulated by the international transfer of gold in response to international variations in price levels. This self-regulating mechanism meant that the structure of money prices would never diverge very far or for very long from the underlying value relations of production. Money therefore remained neutral, a mere means of circulation and a reasonably faithful measure of value.

The advocates of the Currency Principle accepted Ricardo's theory of the self-regulation of metallic money but they also observed that the crises of the 1820s and 1830s had involved violent variations in the general level of prices which could not be explained in terms of changes in the underlying value of gold. In the period preceding such crises, prices would rise rapidly, while with the onset of crisis prices would plummet below even the costs of production leading to widespread bankruptcies.

The reason the Currency Principle theorists offered for such observations was the widespread and unrestrained use of credit and paper money. With the large proportion of transactions carried out by means of credit and settled by means of banknotes and other forms of paper money which were only honoured inside the borders of a particular country, the international movements of gold had far less impact on the overall quantity of money which was in circulation. Furthermore, since money was easy and cheap to produce there was far less constraint on the expansion of the quantity of money by means of the issue of more banknotes. In fact, since the labour required to produce banknotes and other forms of paper money was negligible compared with its face value, paper money could be said to have no intrinsic value - it was not commodity-money. So the self-regulation of metallic money was no longer sufficient for the regulation of the value of money once paper money had become the predominant form of currency through which commodities were circulated.

The answer to this problem offered by the Currency School, and which became enshrined in the 1844 Bank Act, was to establish a rigid link between the amount of banknotes that could be issued by the central bank - i.e. the Bank of England - and the amount of gold that the central bank held in reserve. So to this end the Bank Act prohibited the Bank of England from issuing more than £14 million worth of banknotes beyond the amount backed by its reserves of gold. Since the banking system was sufficiently centralized, the gold reserves of the Bank of England closely represented the national gold reserves from which international trade settlements were made. This meant that any imbalance in trade would be directly reflected in the level of the Bank of England's gold reserves. Now, since the issue of Bank of England banknotes formed the basis for the general issue of banknotes throughout the country, the provisions of the Bank Act meant that any changes in the gold reserves of the Bank of England would directly regulate the issue of paper money so that changes in the international balance of trade, caused by unwarranted changes in the national price level, would be able to regulate the quantity of money in circulation once more.

If prices were rising due to an excess of money in circulation, then imports would tend to rise to take advantage of such higher prices. To pay for these imports, importers would have to exchange banknotes for gold thereby reducing the national reserves of gold. This would lead to a fall in the gold reserves of the Bank of England which would then be obliged to curtail its issue of banknotes, assuming they now exceeded the permitted limit. The decline in the quantity of banknotes in circulation would then tend to restore prices to their old levels and eradicate the imbalance in trade.

On the basis of this legislated link between the Bank of England's gold reserves and its issue of paper money it was hoped that the self-regulation of metallic money could be extended to a currency dominated by paper money, thereby restoring the Ricardian conclusions of neutral money and crisis-free economic development. However, such hopes proved to be ill-founded. The crises of the late 1840s and the late 1850s both forced the suspension of the 1844 Bank Act. Far from averting or mitigating crises it became clear that the act exacerbated them. In both crises there arose a sudden contraction of credit as manufacturers found they could not sell their products and could not therefore meet the claims of their creditors on time. As a result the demand for cash payment rose dramatically increasing the demand for money. Yet the restrictions placed on the issue of banknotes by the 1844 Act meant that the Bank of England could not accommodate this increased demand for money. Faced with the prospect of large swathes of industry going bankrupt for want of short term liquidity the government was obliged to suspend the provisions of the Bank Act.

These forced suspensions of the 1844 Bank Act fuelled the growing opposition to the Currency School. This opposition, led by the leading economists Tooke and Fulleraton, challenged the basic contention that had been advanced by Ricardo that the relative quantity of money directly determined the general level of prices. If this quantity theory of money did not hold then the self-regulating mechanism of metallic money advanced by Ricardo and which the Currency School had hoped to extend to paper money through bank legislation would not work, and the justification for the Bank Act would fall to the ground.

The opponents of the Currency School took as their point of departure the observation that money did not merely act as a means of circulation and payment - that is as simply currency - but also acted as capital. Money was borrowed and lent so that alongside the numerous commodity markets there existed a market for loanable funds; that is for money as capital. With this distinction between currency and capital the opponents of the Currency School were able to challenge the quantity theory of money.

Both Ricardo and the Currency School argued that an increase in the amount of money in circulation could only lead to an increase in the general level of prices to mop up this increase in the quantity of money. So if banks issue more money, prices would, as a result, rise. However the opposing school of thought argued that the amount of money in circulation which acted as currency was determined by prices. If the banks attempted to issue more money than that which was required to realize the prices of commodities then this excess of currency would merely find its way back to them in the form of increased deposits or would fall out of circulation in the form of private hoards. The return of such excess money as deposits would then swell the quantity of loanable funds that the bank could place on the money market, thereby increasing the supply of money capital and so reducing interest rates. So, with the amount of money that could act as currency fixed, any changes in the amount of money issued over and above this amount would serve to swell or contract the money market and with this the level of interest rates.

Having overturned the Currency School's fundamental contention that the quantity of money determined the general level of prices it was then possible to argue that, far from avoiding crises, the Currency School's policy prescriptions had become their principal cause! As the economy grew, the amount of money required to act as currency to circulate the ever increasing mass of commodities would rise. Yet the 1844 Bank Act prevented the Bank of England from accommodating this necessary increase in the amount of money acting as currency. Consequently a point would be reached when the amount of money in circulation would be insufficient to circulate the value of all the commodities produced. Commodities would not be able to find buyers for want of cash, while at the same time money would be withdrawn from the capital market in an attempt to make up the shortfall in currency, leading to rocketing interest rates. Crisis and panic would then break out. Only when the Bank Act was suspended could the necessary amount of currency be accommodated and the crisis resolved.

So while the Currency School argued that crises arose due a lack of control on the growth in the money supply and could therefore be avoided by greater monetary stringency, the opponents of this school of thought argued that crises were due to the restriction of the money supply and could be avoided by less monetary stringency. For Marx, both schools of thought grasped the problem of crisis in a one-sided manner since they both failed to see how financial crises were grounded in the contradictory relation between money as currency and money as capital. Both schools approached the problem of money crisis from the narrow perspective of the banker and thus both sought the solution in terms of banking policy and legislation. Yet such banking policy and legislation were no more the underlying cause of financial crises than they were their solution. Financial crisis were merely the most forcible expression of the fundamental contradictions of the capitalist mode of production; a fact that neither side in the controversy was willing to admit.

In reviewing each side in this controversy, Marx can be seen to be developing his own theory of money and crisis. A theory that was still in its infancy but one that we may still discern in outline.

That Marx rejects the quantity theory of money is made clear in his discussion of the role of money as currency in Volume I where he states: ...the quantity of the circulating medium is determined by the sum of the prices of the commodities circulating, and the average velocity of currency.... The erroneous opinion that it is, on the contrary, prices that are determined by the quantity of the circulating medium...was based, by those who first held it, on the absurd hypothesis that commodities are without price, and money without value, when they first enter into circulation...(Capital I, p. 123) He therefore rejects the position of the Currency School that money acts as merely currency. Yet at the same time Marx also rejects the distinction made by the opponents of the Currency School between money as currency and money as capital. For Marx this distinction is misleading and arises from the narrow perspective of the banker. As Marx observes, money cannot be simply divided between that part which functions to circulate commodities and that part which acts as capital since, as was shown in Marx's analysis of the circuits of industrial capital, capital must assume the form of commodity-capital in the course of its movement. In circulating such commodity-capital, money, functioning as currency, enters the circuit of industrial capital as money- capital. This becomes clear if we recall the circuit of commodity-capital that was set out in Volume II: C' - M' - C'...P...C'' Here we can see money acting as both a means with which to circulate commodities - that is, commodities as commodity- capital - and as money-capital.

Of course money, in functioning as currency, does not necessarily act as money-capital since it may serve to circulate those commodities that fall within the circuits of revenue rather than those of capital. That is, money may act as currency by simply circulating commodities to the various classes for purposes of pure consumption rather than as means through which the value of such commodities may be expanded. So money as currency may act as money-capital or it may not, depending on whether it circulates within the circuits of capital or those of revenue. What is more, because the circuits of revenue are interlinked with those of capital money must necessarily pass from one to the other, taking on the form of money-capital at one time and discarding it at another.

Thus we can see that there can be no rigid distinction made between money as capital and money as currency. Attempts by the opponents of the Currency School to make such a distinction, as Marx details in his review of the controversy over the 1844 Bank Act, could only lead to all sorts of confusion and absurdities. Yet nevertheless this attempt to make a distinction between money as capital and money as currency did reflect a real distinction within the operations of money, albeit in a distorted and one-sided manner. This distinction was that which arose between money as currency and money as interest bearing capital (or moneyed capital). That is the division that arises between money that serves the needs of circulation, whether of the circuits of capital or those of revenue, and money which represents interest bearing capital and which therefore stands outside the immediate process of the circulation of commodities.

As currency, money acts merely as a medium through which commodities circulate and as such it is intimately connected with the real accumulation of both commodity-capital and productive-capital. An accumulation of real productive-capital will bring with it a growth in the mass of commodities produced and with this the volume of currency required to circulate it. However, that part of money which represents interest bearing capital stands outside the process of production and circulation. It is therefore not immediately connected with the real accumulation of capital, although it is ultimately dependent on it - at least insofar as it is dependent on the appropriation of surplus-value in the form of interest. Hence, with this distinction between money as currency and money as interest bearing capital, we can begin to see how the monetary accumulation of capital is both dependent and independent of the real accumulation of productive capital. A contradiction that can then be identified as the fundamental basis for the periodic eruption of financial crises.

So, through his critical confrontation with the contemporary controversy surrounding the 1844 Bank Act, we can see Marx beginning to prepare the way for a theory of the monetary expression of crisis. In fact at numerous points within his critical commentary on this controversy Marx breaks off to tentatively develop various points concerning the contradictory relation between the monetary accumulation of capital and the accumulation of real productive capital in terms of both money as currency and money as interest bearing capital. Let us briefly consider this.

i) currency In chapter 28 Marx comes to explicitly address the question of the relation of money as currency to the real accumulation of capital. This he does by considering the variations in the volume of currency that occur in both the circuits of revenue and the circuits of capital throughout the course of the business cycle. In doing so Marx establishes that, even in terms of money acting as currency, there emerges a divergence and opposition within the unity of monetary and real productive accumulation of capital, as we shall now see.

In the phase of expansion production expands as prices rise, bringing with it a rapid increase in the mass of wages, profits and rents. With this growth in revenues the revenue circuits swell as capitalists, landlords and workers spend more on the consumption of commodities and services. Marx argues that this will require an increase in the volume of money acting as currency since the opportunities for extended credit or a higher velocity in the circulation of money are limited in these circuits of revenue.

In the circuits of capital, on the other hand, economic expansion is accompanied by an enormous growth in commercial credit. Economic confidence encourages capitalists to offer credit to purchasers in order to speed up sales, and to accept credit from suppliers in order to speed up the recommencement of production. This enormous growth in credit, which is accompanied by an rapid increase in the velocity of the circulation of money acting as currency, means that, despite the expansion in the volume of commodity-capital which needs to be circulated, the same, or even in some cases, less, volume of currency is required than before.

Hence, while the demand for money increases in the revenue circuits, it remains the same, or even falls, in the circuits of capital. Yet all this changes with the onset of crisis and the subsequent period of economic stagnation.

The growth in credit during the period of expansion serves both to shorten the turnover period of capital and to free it from the monetary constraints of payment. At the same time, however, the reflux of money, which serves to socially validate commodities, and the labour embodied in them, becomes increasingly separated from the movement of commodities. As expansion proceeds credit becomes more and more speculative as the duration of credit lines lengthen. Sooner or later crisis sets in. Capitalists find that their expectations of profit were illusory yet they are still obliged to pay their creditors. With a sharp rise in defaults credit starts to dry up as everyone demands payment in cash. Consequently, the limits to accumulation become expressed in a sudden rise in the demand for money, not as a means of circulation, but as a means of payment to settle outstanding debts. In the subsequent period of stagnation the level of commercial credit remains low, and the demand rises for money as currency.

In the revenue circuit, however, widespread unemployment and depressed wages together with low profits and rents mean that the demand for currency becomes greatly contracted. Thus in the period of stagnation the volume of currency will tend to be high in the circuits of capital and low in the circuits of revenue.

With this preliminary analysis of money as currency it can be seen how monetary accumulation is closely connected with the development of the real accumulation of productive capital. Yet this connection is not one of simple congruence. With the extension of credit the accumulation of real productive capital gains a relative autonomy from the monetary constraints imposed by money as currency; it is able to step beyond the strict limits imposed by the necessity of money payments. Yet the accumulation of real productive capital can only free itself from such constraints for so long. Sooner or later the monetary constraint on the real accumulation of productive capital, and with it the unity of monetary and real productive accumulation, has to be forcibly re-imposed through the eruption of crisis. Even in terms of money as currency, monetary laxity and monetary stringency are two essential but contradictory moments in the overall process of the accumulation of capital.

ii) Interest bearing capital As we have seen, it first appeared that, since money as currency is immediately connected to the processes of circulation and production, the volume of currency would be directly related to the real accumulation of productive capital. Yet on closer inspection, with the distinction between the demand for currency in the circuits of revenue and in the circuits of capital, it became clear that even in terms of money as currency there was a limited relative autonomy between monetary accumulation and the real accumulation of productive capital. Now, with our consideration of Marx's analysis of interest bearing capital, we shall see that while at first sight moneyed capital stands outside the process of production and circulation, and thus appears as independent of the real accumulation of capital, on closer inspection it emerges that ultimately interest bearing capital is in fact dependent on the accumulation of real productive capital.

In Volume II we noted how in various ways the movement of money-capital may become detached, at least temporarily, from the overall movement of industrial capital. Money may be withdrawn as latent capital to ensure the continuity of production, as an amortization fund for fixed capital, or else be saved up to finance the necessary quantum of capital required to expand production or set a new individual circuit of capital into motion. Such latent capital, standing outside the day to day circulation of commodities, along with the concentration of savings from various social strata and classes, forms the basis for interest bearing capital. The investment of this capital brings with it a vast accumulation of what Marx terms fictitious capital; paper claims to interest payments that exist side by side, but also autonomously from, the real productive capital that they claim to represent. As Marx elaborates: Titles of ownership to public works, railways mines etc.; are indeed...titles to real capital. But they do not place this capital at one's disposal. It is not subject to withdrawal. They merely convey legal claims to a portion of the surplus-value to be produced by it.

But these titles likewise become paper duplicates of the real capital; it is as though a bill of lading were to acquire a value seperate from the cargo, both concomitantly and simultaneously with it. For real capital exists side by side with them and does not change hands as a result of the transfer of these duplicates from one person to another They assume the form of interest bearing capital... To the extent that the accumulation of this paper expresses the accumulation of railways, mines, steamships etc. to that extent does it express the extension of the actual reproduction process - just as the extension of, for example, a tax list on moveable property indicates the expansion of this property. But as duplicates which are themselves objects of transaction as commodities, and thus able to circulate as capital-values, they are illusory, and their value may fall or rise quite independently of the movement of value of the real capital for which they are titles. (Capital III, p.

477) In standing outside the immediate process of the reproduction of real productive capital there can be an enormous autonomous accumulation of such fictitious capital quite independent of the rhythms of the real accumulation of capital. In fact, insofar as the rise in the rates of interest which coincide with the onset of crisis tends to augment the value of fictitious capital, and to the degree that stagnation in production will divert investment into speculative paper investments, the accumulation of moneyed capital may well at times be the reverse of that of the accumulation of real productive investment.

However, interest bearing capital, and the accumulation of fictitious paper capital, is dependent, as we have already noted, on the mass of money that is thrown out of the circuits of capital (and to a lesser degree revenue) as latent money- capital. It is also dependent on its ability to appropriate sufficient surplus-value in the form of interest, and is to that degree dependent on the continued production and realization of surplus-value. So ultimately the accumulation of fictitious capital is dependent on the real accumulation of productive capital. If the monetary accumulation of such moneyed capital proceeds beyond a given point then once the unity of the overall accumulation of capital will have to reimposed in the form of crisis.

Conclusion So, it can be seen that, through his critical review of the controversy surrounding the 1844 Bank Act, Marx was in the process of abstracting the preliminary elements for an analysis of the articulation of monetary accumulation with the accumulation of real productive capital which would have provided a vital part of his eventual theory of crisis. Yet Marx is in a very early stage of his investigation, and it is an investigation that once more transgresses the limits of the unity of capital and hence the principal line of theoretical development of Capital.

At this stage Marx is only able to offer a largely descriptive exposition of money and crisis. In relating how the volume of currency is related to the business cycle of real productive capital this cycle is taken as given. Marx is unable at this point to set out the precise conditions and necessity for the eventual outbreak of crisis and how this is related to money as currency. Nor is he able to go far in analysing the precise conditions and necessity for crisis with regard to interest bearing capital. To do so would have presupposed not only Marx's promised theory of competition but also the integration of this theory of interest bearing capital and currency with that of latent and fixed capital; and the intergration of his theory of money and crisis with that of the falling rate of profit; and so forth. All this lies beyond Marx's exposition at this point.

So, for the third time in Volume III, we find Marx taking up an excursus only to find that it ends up in a tangential digression into the question of crisis. But once more this question is premature. Marx is again obliged to break off and return to his principal line of theoretical development - this time to his theory of the transformation of surplus-value into rent.

With each of these digressions Marx investigates a different aspect of the question of rupture and crisis. But being confined to the margins of Marx's exposition, as mere investigations that are merely adjunctive to his main presentation, these fragments on the question of crisis remain unconnected. Each fails to inform the other. As a consequence we can say that there is no unified general theory of crisis in Capital. Such a theory lies beyond Capital's remit. And we may add that the failure to recognize this has had important implications for Marxist theory, which has so often sought to assert one isolated fragment of Marx's theory of crisis against another, or else simply taken each in isolation.

But we cannot dwell on these implications here.(11) We must now move on to complete our consideration of Volume III.

D) The conclusion of Capital We have seen in some detail how in Volume III Marx presents his theory of the transformation of surplus-value into its distributional form of profit; and the division of this gross profit into interest and profit-on-enterprise. The next step for Marx was to show how a portion of surplus-value becomes appropriated in the form of rent by presenting his theories of absolute and differential ground rent that he had originally developed in his Theories of Surplus-Value. Since we have already dealt with Marx's theory of rent and its implications within the general structure of Capital at some considerable length we shall not repeat it here. Instead we shall move onto Part VII of Volume III which brings Capital to its abrupt close.

i) The trinity formula At the surface of bourgeois society the categories of profit, rent and wages, appear as self-evident. Each appears as the due reward for the use of the three factors of production: capital, land and labour. In fact, insofar as profit-on- enterprise is construed as a wage of superintendence, this trinity formula becomes interest on capital, rent for land and wages to labour. Yet, as the entire exposition of Capital aims to show, this conception of the trinity formula, which bourgeois economy takes as its starting point, is merely the necessary appearance of the inner relations of the capitalist mode of production. Capital, land and labour are not things that are simply combined to produce wealth but are social forms that emerge with the appropriation of the means of production and natural resources by distinct classes in society and the consequent exclusion of the vast majority of the population from the means of creating wealth. The apparent cooperation of factors of production as simply a conjunction of things only serves to conceal the exploitative class relations of bourgeois society.

For Marx, classical political economy had the merit of attempting to go behind the trinity formula to unearth the inner relations of capitalist production and distribution; but it failed to reconcile these relations to their mode of appearance. Unable to free themselves from their bourgeois commitment to seeing the forms of bourgeois society as being both natural and eternal, they either had to be content with a theory that was inconsistent (like that of Smith) or else one that was consistent but which eventually ran into insurmountable contradictions (like that of Ricardo and his labour theory of value).

Vulgar economics, on the other hand, merely remained at the surface of the bourgeois economy and merely sought to elaborate the conception of the trinity formula. As Marx remarks while concluding his exposition on the trinity formula: Vulgar economy actually does no more than interpret, systemise and defend in doctrinaire fashion the conceptions of the agents of bourgeois production who are entrapped in bourgeois production relations. It should not astonish us, then, that vulgar economy feels particularly at home in the estranged outward appearances of economic relations... (Capital III, p. 817) By showing how the inner relations of the capitalist mode of production make their appearance in the inverted and disguised form of the trinity formula in the minds of the various agents of bourgeois society, Marx is able to make his critique of vulgar economics explicit. With the development of his presentation, from the inner relations of capitalist production to their appearance in the trinity formula, the failings of both vulgar economy and classical political economy stand exposed. Thus in returning to the trinity formula, the starting point of bourgeois political economy, Marx's critique of political economy appears complete.

ii) The final chapter on classes With the completion of his critique of political economy it might appear that Marx was in a position to have reversed the provisional closure within his thematic with regard to the question of class struggle - the negative and subjective side of the dialectic of capital. That Marx was to some degree impatient to make such a reversal is evident from both his letter to Engels of 1867 that we quoted at the beginning of chapter 6, and from the final chapter on classes.

The final chapter of Capital, chapter 52 of Volume III, which follows directly on from Marx's analysis of the trinity formula, is directly concerned with the three 'great classes of bourgeois society'. Yet this chapter lasts little more than a page before it abruptly breaks off. Is this abrupt halt in Marx's manuscripts solely due to his repeated ill- health? Or has this sudden ending a greater significance?

A consideration of the material and economic basis of classes is undoubtedly the first step towards the question of class struggle. But to fully address this question the objective and positive dialectic of capital must give way to its subjective negation in the counter-dialectic of class struggle. Classes cannot be merely confined to being in- themselves - simple character masks for the impersonal objective forces of the economy and capital - but must consciously act and organize, become classes in and for- themselves. Such a development requires the mediation of crisis, the development of temporary centrifugal forces in the dialectic of capital that can break up and rupture the smooth operation of its objectification and reification. Yet, as we have seen, Marx's investigation into the theory of crisis, which becomes most explicit in the course of Volume III, is always tangential to the principal line of theoretical development contained in Capital. We find that crisis is always marginal to the text of Capital itself.

This marginalization of crisis is indicative of the second part of the provisional two-fold closure that is enacted within Capital by Marx's specific problematic of the critique of political economy. This closure, as we have repeatedly sought to stress, was a methodological necessity for Marx. It was through such a provisional closure that Marx was able to hold fast to the essential objective relations of the capitalist mode of production that are the material basis for classes and hence class struggle in the bourgeois epoch.

Yet having done this, Marx now had to reopen this closure so as to place rupture and crisis at the centre of his exposition. Yet, as our analysis of the imposition and consolidation of closure would seem to imply, to have done this would have required Marx to have retraced his steps right back to the commodity-form in order to now stress the difference and divergence rather than the unity of capital. He would have had to unfold his categories from the embryonic form of the commodity as not the unity of its opposed aspects of value and use-value, but rather as the provisional unity of the contradiction of value and use-value.

Such a task was a formidable one, far greater than simply completing a chapter as such; and a task that was clearly too great for the ailing Marx. Thus we find Capital inscribing a two-fold closure within Marx's thematic of capitalism and its overthrow. A closure that not only forecloses the question of class struggle and subjectivity but in doing so also closes off and marginalizes the question of crisis and rupture in order to stress the unity and possibility of the capitalist mode of production. All in order to be better able to make a critique of bourgeois political economy.

Having made a detailed exegesis of this provisional two-fold closure in the three volumes of Capital we must now step back and consider Capital and this closure as whole. In doing so we shall see once more how Marx makes his critique of political economy on the basis of his critique of Hegel.

Notes

1. This reduction of profit to mere interest on the use of capital is clearly set out in any elementary text-book on economics. However, often a small 'entrepreneurial', or 'normal' profit is assumed as a reward for the 'enterprise and risks' undertaken by the capitalist, that is then considered as the fourth factor of production alongside land, labour and capital.

2. This second conception of profit as a given mark up on costs has been taken up by Post-Keynesian critics of neo- classical economics. The advantage of such an approach has been that it is has been able to develop a more cogent theory of price formation under monopoly capitalism as compared with neo-classical theory which begins from the mythical notion of perfect competition. See for example Cowling (1982). For a Marxist critique of such 'radical economics' see Fine & Murfin (1984).

3. So where would this 'missing chapter on the turnover of constant capital' have been located in Part II of Volume II. Marx himself does not offer us any clues, we can therefore only look at the logical structure that we find unfolding in this volume. As we have seen, Marx begins Part II of Volume II by considering the overall circulation of industrial capital abstracted from its process of expansion. Until Chapter XVI Marx is only concerned with the distinction between variable and constant capital in so far as it is in contradistinction to that of fixed and circulating capital. However, in Chapter XVI - 'The Turnover of Variable Capital' - Marx comes to introduce the question of the expansion of capital in terms of the turnover of capital and, as it title suggests, this involves the problem of the turnover of variable capital and its relation to the production over time of surplus-value and simple and annual rates of surplus-value. This and the subsequent chapter - 'The Circulation of Surplus-Value - can be seen as part of a transition to Marx's analysis of both the simple and expanded reproduction of capital of Part III. It would seem, therefore, that if Marx was to have included a chapter on the turnover of constant capital it would have most likely have fitted in just after Chapter XVI so that the annual rate of profit, and hence the degree of expansion of capital as whole, could have been derived before examining the expanded reproduction of capital.

4. As we shall see when we consider Marx's theory of the falling rate of profit in Part III, Ricardo located the limits of capitalism, and thus implicitly the location of crisis, in the limits to agricultural production. It is therefore no surprise that in developing his own theory of the barriers to capitalist accumulation against that of Ricardo, Marx should take as his first staging post the relation between capitalist agriculture and capitalist manufacturing industries so as to grasp the moment of truth in the Ricardian perspective. However, it is clear that the limitations agriculture places on the accumulation of capital are not simply natural and hence external to the very process of capital accumulation.

5. In their attack on Marx's labour theory of value Steedman and other neo-Ricardians have attempted to show that Marx is inconsistent in equating at one and the same time the mass of surplus-value and the mass of profits and the total of money- prices and the sum total of labour-values. For a succinct reply to such criticisms see Anwar Shaikh's article 'The Transformation from Marx into Sraffa' in Mandel & Freeman (1984).

6. For a detailed discussion of potential and actual value in Marx's value theory, see Carchedi (1987).

7. For a comprehensive review of the role of 'Say's Law' in the history of economic theory, albeit from a neo-classical perspective, see Sowell (1972). This should perhaps be compared with Luxemburg's consideration of underconsumptionist theories in Luxemburg (1913).

8. See Reuten (1991).

9. The 'Okishio Theorem' is set out in Okishio (1961). For a detailed discussion of 'Okishio Theorem' see Morishima & Catephores (1978). For a concise critique of such neo- Ricardian criticisms of Marx's theory of the tendency for the rate of profit to fall, see Fine & Harris (1979).

10. This finds its reflection in the perennial controversy amongst accountants between historic and replacement cost accounting methods. See Bryer & Brignall (1986).

11. A comprehensive examination of Marxist crisis theory from the classical theories that arose with the Second International to the modern theories of the regulation school is well beyond the scope of this work. For a concise historical review of Marxists crisis theories as theories of capitalist breakdown, see Hansen (1985). For perhaps the most comprehensive attempt to unite the classical Marxist crisis theories in terms of present day capitalist conditions, see Mandel (1975).