Interpretation of Marx's Theory

chapter 2 Algebraic Summary: A ‘Macro-Monetary’ Interpretation of Marx’s Theory

This chapter summarises in algebraic form the ‘macro-monetary’ interpret- ation of Marx’s theory of the production and distribution of surplus-value presented in this book. It is hoped that this algebraic summary will clarify the main points and will serve as a reference point for later chapters, which will provide further arguments and extensive textual evidence to support the inter- pretation.

1 Theory of the Production of Surplus-Value

I argued in Chapter 1 that the general analytical framework of Marx’s theory of the production of surplus-value is the circuit of money capital:

M – C … P … C′ – M′ where M′ = M + ΔM.

In Volume I, this circuit of money capital applies to the total capital in the economy as a whole. The main question of Volume I is the determination of the magnitude of the total surplus-value produced in the economy as a whole. This aggregate circuit does not imply that all the individual capitals go through the different phases at the same time (obviously they do not), but only that they all go through these phases in this order – money capital is advanced and then more money capital is recovered, together with ΔM. All the individual capitals that go through these similar circuits over the course of a year can be added up to obtain the aggregate totals, which is the subject of Volume I. Most of the variables discussed in this section refer to aggregate variables for the economy as a whole (except equations 10 and 12–15). The initial money capital M at the beginning of the circuit of money capital consists of two components – constant capital invested in means of production and variable capital invested in labour power. Part of the advanced constant capital is fixed capital, which is invested in long-lasting means of production and which is transferred to the value of the output ‘bit by bit’ and thus is recovered ‘bit by bit’ by the annual depreciation charge over the expected

© koninklijke brill nv, leiden, 2016 | doi: 10.1163/9789004301931_003 28 chapter 2 lifetime of the means of production.1 If we consider a period of time of one year, then constant capital consists of the annual depreciation cost of fixed capital plus the circulating constant capital of that year (the cost of raw materials, auxiliary materials, etc.), and variable capital is the annual wage cost. The sum of these costs is the cost price of commodities. The final money capital recovered M′ in a year is equal to the value of the commodities produced and sold (P). Therefore, the surplus-value produced in one year is by definition equal to the difference between the value of the com- modities produced during this year and the cost price of these commodities (K):

(1) S = P – K

These two determinants of surplus-value will be examined in turn.

1.1 Cost Price As just discussed, the cost price of commodities is the sum of two components: consumed constant capital (C)2 and variable capital (V):

(2) K = C + V

I argued in Chapter 1 that constant capital and variable capital are taken as given in Marx’s theory of surplus-value, as the actual (long-run equilibrium) quantities of money capital advanced to purchase means of production and labour power (equal to the price of production of the means of production and means of subsistence, respectively).3 These actual quantities of money

1 The annual depreciation cost of constant capital of each type of means of production (Di) is

equal to the total fixed constant capital invested in each type of means of production (FCi)

divided by its expected lifetime (Yi, in years) (i.e., Di = FCi /Yi). The fact that depreciation is computed in this way is itself evidence that constant capital (in this case fixed constant capital) is taken as given in Marx’s theory of value and surplus-value. 2 Please note that this C which stands for consumed constant capital (depreciation cost of fixed constant capital plus circulating constant capital) is not the same as the C which stands for commodities in the circuit of money capital. The context should make clear which C I am talking about in any passage. 3 As discussed in Chapter 1, by ‘actual’ I mean quantities of constant capital and variable capital that are equal to the actual long-run equilibrium prices (i.e., prices of production) of the means of production and means of subsistence, respectively; i.e., as opposed to quantities