Introduction

The third book of Capital is receiving many and various
interpretations ever since it has been subject to public judgement. It was not
to be otherwise expected. In publishing it, what I was chiefly concerned with
was to produce as authentic a text as possible, to demonstrate the new results
obtained by Marx in Marx’s own words as far as possible, to intervene
myself only where absolutely unavoidable, and even then to leave the reader in
no doubt as to who was talking to him. This has been deprecated. It has been
said that I should have converted the material available to me into a
systematically written book, en faire un livre, as the French say; in
other words, sacrifice the authenticity of the text to the reader’s
convenience. But this was not how I conceived my task. I lacked all
justification for such a revision, a man like Marx has the right to be heard
himself, to pass on his scientific discoveries to posterity in the full
genuineness of his own presentation. Moreover, I had no desire thus to infringe
— as it must seem to me — upon the legacy of so pre-eminent a man; it would have meant to me a breach of faith. And third, it would have been quite useless.
For the people who cannot or do not want to read, who, even in Volume I, took
more trouble to understand it wrongly than was necessary to understand it
correctly — for such people it is altogether useless to put oneself out in any
way. But for those who are interested in a real understanding, the original text
itself was precisely the most important thing; for them my recasting would have
had at most the value of a commentary, and, what is more, a commentary on
something unpublished and inaccessible. The original text would have had to be
referred to at the first controversy, and at the second and third its
publication in extenso would have become quite unavoidable.

Such controversies are a matter of course in a work that contains so much
that is new, and in a hastily sketched and partly incomplete first draft to
boot. And here my intervention, of course, can be of use: to eliminate
difficulties in understanding, to bring more to the fore important aspects whose
significance is not strikingly enough evident in the text, and to make some
important additions to the text written in 1865 to fit the state of affairs in
1895. Indeed, there are already two points which seem to me to require a brief
discussion.

I. Law of Value and Rate of Profit

It was to be expected that the solution of the apparent
contradiction between these two factors would lead to debates just as much
after, as before, the publication of Marx's text. Some were prepared for
a complete miracle, and find themselves disappointed because they see a
simple, rational, prosaically-sober solution of the contradiction, instead
of the hocus-pocus they had expected. Most joyfully disappointed, of course,
is the well-known, illustrious Loria. He has at last found the Archimedian
fulcrum from which even a gnome of his calibre can lift the solidly built,
gigantic Marxian structure into the air and explode it. What! he declaims
indignantly. Is that supposed to be a solution? That is pure mystification!
When economists speak of value, they mean value that is actually established
in exchange.

"No economist with any trace of sense has ever concerned himself or will ever want to concern himself with a value which commodities do not
sell for and never can sell for (ne possono vendersi mai).... In
asserting that the value for which commodities never sell is proportional
to the labor they contain, what does Marx do except repeat in an inverted
form the thesis of the orthodox economists, that the value for which commodities
sell is not proportional to the labor expended on them? ... Matters are not helped by Marx's saying that despite the divergency of individual prices from individual values, the total price of all commodities always coincides with their total value, or the amount of labor contained in the totality of the commodities. For inasmuch as value is nothing more than the exchange ratio between one commodity and another, the very concept of a total value is an absurdity, nonsense ... a contradictio in adjecto...."

At the very beginning of the book, he argues, Marx says that exchange can
equate two commodities only by virtue of a similar and equally large element
contained in them — namely, the equal amount of labor. And now he most
solemnly repudiates himself by asserting that commodities exchange with
one another in a totally different ratio than that of the amount of labor
contained in them.

"Was there ever such an utter reductio ad absurdum, such complete theoretical bankruptcy? Was ever scientific suicide committed with greater
pomp and more solemnity!" (Nuova Antologia, Feb.1, 1895, pp.478-79.)

We see: our Loria is more than happy. Wasn't he right in treating Marx
as one of his own, as an ordinary charlatan? There you see it — Marx sneers
at his public just like Loria; he lives on mystification just like the
most insignificant Italian professor of economics. But, whereas Dulcamara
can afford that because he knows his trade, the clumsy Northerner, Marx,
commits nothing but ineptitudes, writes nonsense and absurdities, so that
there is nothing left finally for him but solemn suicide.

Let us save for later the statement that commodities have never been
sold, nor can ever be sold, at the values determined by labor. Let us deal
here merely with Mr. Loria's assurance that

"value is nothing more than the exchange ratio between one commodity and another," and that therefore "the very concept of a total value is an absurdity, nonsense..."

The ratio in which two commodities are exchanged for
each other, their value, is therefore something purely accidental, stuck
on to the commodities from the outside, which can be one thing today and
something else tomorrow. Whether a metric hundredweight of wheat is exchanged
for a gramme or a kilogramme of gold does not in the least depend upon
conditions inherent in that wheat or gold. For otherwise these conditions
would also have to assert themselves in the exchange, dominate the latter
on the whole, and also have an independent existence apart from exchange,
so that one could speak of a total value of commodities. That is nonsense,
says the illustrious Loria. No matter in what ratio two commodities may
be exchanged for each other, that is their value — and that's all there
is to it. Hence, value is identical with price, and every commodity has
as many values as the prices it can get. And price is determined by supply
and demand; and any one asking any more questions is a fool to expect an
answer.

But there is a little hitch to the matter. In the normal state,
supply and demand balance. Therefore, let us divide all the commodities
in the world into two halves, the supply group and the equally large demand
group. Let us assume that each represents a price of 1,000 billion marks,
francs, pounds, or what you will. According to elementary arithmetic, that
makes a price of 2,000 billions. Nonsense, absurd, says Mr. Loria. The
two groups together may represent a price of 2,000 billions. But it is
otherwise with value. If we say price: 1,000 + 1,000 = 2,000. But if we
say value: 1,000 + 1,000 = 0. At least in this case, where the totality
of commodities is involved. For here the commodities of each of the two
groups are worth 1,000 billion only because each of the two can and will
give this sum for the commodities of the other. But if we unite the totality
of the commodities of the two in the hands of a third person, the first
has no value in his hand any longer, nor the second, and the third certainly
not — in the end, no one has anything. And again we marvel at the superiority
with which our southern Cagliostro has manhandled the concept of value
in such a fashion that not the slightest trace of it has been left. This
is the acme of vulgar economics! [1]

In Braun's Archiv für soziale Gesetzgebung, Vol. VII, No.4,
Werner Sombart gives an outline of the Marxian system which, taken all
in all, is excellent. It is the first time that a German university professor
succeeds on the whole in seeing in Marx's writings what Marx really says,
stating that the criticism of the Marxian system cannot consist of a refutation
—

"let the political careerist deal with that"

— but merely in a further development. Sombart, too, deals with our subject,
as is to be expected. He investigates the importance of value in the Marxian system,
and arrives at the following results. Value is not manifest in the exchange relation
of capitalistically produced commodities; it does not live in the consciousness of
the agents of capitalist production; it is not an empirical, but a mental, a logical
fact; the concept of value in its material definiteness in Marx is nothing but the
economic expression for the fact of the social productive power of labor as the basis
of economic existence; in the final analysis, the law of value dominates economic processes in
a capitalist economic system, and for this economic system quite generally
has the following content: the value of commodities is the specific and historical form in
which the productive power of labor, in the last analysis dominating all
economic processes, asserts itself as a determining factor. So, says Sombart, it cannot
be said that this conception of the significance of the law of value for the capitalist
form of production is wrong. But it does seem to me to be too broad, and susceptible of a
narrower, more precise formulation: in my opinion it by no means exhausts the entire
significance of the law of value for the economic stages of society's development
dominated by this law.

There is a likewise excellent article by Conrad Schmidt on the
third volume of Capital in Braun's Sozialpolitisches Zentralblatt,
February 25, 1895, No.22. Especially to be emphasized here is the proof
of how the Marxian derivation of average profit from surplus-value for
the first time gives an answer to the question not even posed by economics
up to now: how the magnitude of this average rate of profit is determined,
and how it comes about that it is, say, 10 or 15 per cent and not 50 or
100 per cent. Since we know that the surplus-value first appropriated by
the industrial capitalist is the sole and exclusive source from which profit
and rent flow, this question solves itself. This passage of Schmidt's article
might be directly written for economists a la Loria, if it were not labor
in vain to open the eyes of those who do not want to see.

Schmidt, too, has his formal misgivings regarding the law of value.
He calls it a scientific hypothesis, set up to explain the actual
exchange process, which proves to be the necessary theoretical starting
point, illuminating and indispensable, even in respect of the phenomena
of competitive prices which seem in absolute contradiction to it. According
to him, without the law of value all theoretical insight into the economic
machinery of capitalist reality ceases. And in a private letter that he
permits me to quote, Schmidt declares the law of value within the capitalist
form of production to be a pure, although theoretically necessary, fiction.
This view, however, is quite incorrect in my opinion. The law of value
has a far greater and more definite significance for capitalist production
than that of a mere hypothesis, not to mention a fiction, even though a
necessary one.

Sombart, as well as Schmidt, — I mention the illustrious Loria
merely as an amusing vulgar-economist foil — does not make sufficient
allowance for the fact that we are dealing here not only with a purely
logical process, but with a historical process, and its explanatory reflection
in thought, the logical pursuance of its inner connections.

The decisive passage is to be found in Marx, Vol. III,:

"The whole difficulty arises from the fact that commodities are not
exchanged simply as commodities, but as products of capitals,
which claim participation in the total amount of surplus-value, proportional
to their magnitude, or equal if they are of equal magnitude."

To illustrate this difference, it is supposed that the workers are in possession
of their means of production, that they work on the average for equally
long periods of time and with equal intensity, and exchange their commodities
with one another directly. Then, in one day, two workers would have added
by their labor an equal amount of new value to their products, but the
product of each would have different value, depending on the labor already
embodied in the means of production. This latter part of the value would
represent the constant capital of capitalist economy, while that part of
the newly-added value employed for the worker's means of subsistence would
represent the variable capital, and the portion of the new value still
remaining would represent the surplus-value, which in this case would belong
to the worker. Thus, after deducting the amount to replace the "constant"
part of value only advanced by them, both workers would get equal values;
but the ratio of the part representing surplus-value to the value of the
means of production — which correspond to the capitalist rate of profit
— would be different in each case. But since each of them gets the value
of the means of production replaced through the exchange, this would be
a wholly immaterial circumstance.

"The exchange of commodities at their values, or approximately at their
values, thus requires a much lower stage than their exchange at
their prices of production, which requires a definite level of capitalist
development.... Apart from the domination of prices and price movement by the
law of value, it is quite appropriate to regard the values of commodities
as not only theoretically but also historically antecedent
(prius) to the prices of production. This applies to conditions in which
the laborer owns his own means of production, and this is the condition
of the land-owning working farmer and the craftsman, in the ancient as
well as in the modern world. This agrees also with the view we expressed
previously, that the evolution of products into commodities arises through
exchange between different communities, not between the members of the
same community. It holds not only for this primitive condition, but also
for subsequent conditions, based on slavery and serfdom, and for the guild
organization of handicrafts, so long as the means of production involved
in each branch of production can be transferred from one sphere to another
only with difficulty and therefore the various spheres of production are
related to one another, within certain limits, as foreign countries or
communist communities."

Had Marx an opportunity to go over the third volume once more, he would
doubtless have extended this passage considerably. As it stands, it gives
only a sketchy outline of what is to be said on the point in question.
Let us, therefore, examine it somewhat closer.

We all know that at the beginning of society, products are consumed
by the producers themselves, and that these producers are spontaneously
organized in more or less communistic communities; that the exchange of
the surplus of these products with strangers, which ushers in the conversion
of products into commodities, is of a later date; that it takes places
at first only between individual communities of different tribes, but later
also prevails within the community, and contributes considerably to the
latter's dissolution into bigger or smaller family groups. But even after
this dissolution, the exchanging family heads remain working peasants,
who produce almost all they require with the aid of their families on their
own farmsteads, and get only a slight portion of the required necessities
from the outside in exchange for surplus products of their own. The family
is engaged not only in agriculture and livestock-raising; it also works
their products up into finished articles of consumption; now and then it
even does its own milling with the hand-mill; it bakes bread, spins, dyes,
weaves flax and wool, tans leather, builds and repairs wooden buildings,
makes tools and utensils, and not infrequently does joinery and blacksmithing;
so that the family, or family group, is in the main self-sufficient.

The little that such a family had to obtain by barter or buy from
outside, even up to the beginning of the 19th century in Germany, consisted
principally of the objects of handicraft production — that is, such things
the nature of whose manufacture was by no means unknown to the peasant,
and which he did not produce himself only because he lacked the raw material
or because the purchased article was much better or very much cheaper.
Hence, the peasant of the Middle Ages knew fairly accurately the labor-time
required for the manufacture of the articles obtained by him in barter.
The smith and the cartwright of the village worked under his eyes; likewise,
the tailor and shoemaker — who in my youth still paid their visits to
our Rhine peasants, one after another, turning home-made materials into
shoes and clothing. The peasants, as well as the people from whom they
bought, were themselves workers; the exchanged articles were each one's
own products. What had they expended in making these products? Labor and
labor alone: to replace tools, to produce raw material, and to process
it, they spent nothing but their own labor-power; how then could they exchange
these products of theirs for those of other laboring producers otherwise
than in the ratio of labor expended on them? Not only was the labor-time
spent on these products the only suitable measure for the quantitative
determination of the values to be exchanged: no other way was at all possible.
Or is it believed that the peasant and the artisan were so stupid as to
give up the product of 10 hours' labor of one person for that of a single
hours' labor of another? No other exchange is possible in the whole period
of peasant natural economy than that in which the exchanged quantities
of commodities tend to be measured more and more according to the amounts
of labor embodied in them. From the moment money penetrates into this mode
of economy, the tendency towards adaptation to the law of value (in the
Marxian formulation, nota bene!) grows more pronounced on the one hand,
while on the other it is already interrupted by the interference of usurers'
capital and fleecing by taxation; the periods for which prices, on average,
approach to within a negligible margin of values, begin to grow longer.

The same holds good for exchange between peasant products and
those of the urban artisans. At the beginning, this barter takes places
directly, without the medium of the merchant, on the cities' market days,
when the peasant sells and makes his purchases. Here, too, not only does
the peasant know the artisan's working conditions, but the latter knows
those of the peasant as well. For the artisan is himself still a bit of
a peasant — he not only has a vegetable and fruit garden, but very often
also has a small piece of land, one or two cows, pigs, poultry, etc. People
in the Middle Ages were thus able to check up with considerable accuracy
on each other's production costs for raw material, auxiliary material,
and labor-time — at least in respect of articles of daily general use.

But how, in this barter on the basis of the quantity of labor,
was the latter to be calculated, even if only indirectly and relatively,
for products requiring a longer labor, interrupted at irregular intervals,
and uncertain in yield — grain or cattle, for example? And among people,
to boot, who could not calculate? Obviously, only by means of a lengthy
process of zigzag approximation, often feeling the way here and there in
the dark, and, as is usual, learning only through mistakes. But each one's
necessity for covering his own outlay on the whole always helped to return
to the right direction; and the small number of kinds of articles in circulation,
as well as the often century-long stable nature of their production, facilitated
the attaining of this goal. And that it by no means took so long for the
relative amount of value of these products to be fixed fairly closely is
already proved by the fact that cattle, the commodity for which this appears
to be most difficult because of the long time of production of the individual
head, became the first rather generally accepted money commodity. To accomplish
this, the value of cattle, its exchange ratio to a large number of other
commodities, must already have attained a relatively unusual stabilization,
acknowledged without contradiction in the territories of many tribes. And
the people of that time were certainly clever enough — both the cattlebreeders
and their customers — not to give away the labor-time expended by them
without an equivalent in barter. On the contrary, the closer people are
to the primitive state of commodity production — the Russians and Orientals,
for example — the more time do they still waste today, in order to squeeze
out, through long tenacious bargaining, the full compensation for their
labor-time expended on a product.

Starting with this determination of value by labor-time, the whole
of commodity production developed, and with it, the multifarious relations
in which the various aspects of the law of value assert themselves, as
described in the first part of Vol. I of Capital; that is, in particular,
the conditions under which labor alone is value-creating. These are conditions
which assert themselves without entering the consciousness of the participants
and can themselves be abstracted from daily practice only through laborious,
theoretical investigation; which act, therefore, like natural laws, as
Marx proved to follow necessarily from the nature of commodity production.
The most important and most incisive advance was the transition to metallic
money, the consequence of which, however, was that the determination of
value by labor-time was no longer visible upon the surface of commodity
exchange. From the practical point of view, money became the decisive measure
of value, all the more as the commodities entering trade became more varied,
the more they came from distant countries, and the less, therefore, the
labor-time necessary for their production could be checked. Money itself
usually came first from foreign parts; even when precious metals were obtained
within the country, the peasant and artisan were partly unable to estimate
approximately the labor employed therein, and partly their own consciousness
of the value-measuring property of labor had been fairly well dimmed by
the habit of reckoning with money; in the popular mind, money began to
represent absolute value.

In a word: the Marxian law of value holds generally, as far as
economic laws are valid at all, for the whole period of simple commodity
production — that is, up to the time when the latter suffers a modification
through the appearance of the capitalist form of production. Up to that
time, prices gravitate towards the values fixed according to the Marxian
law and oscillate around those values, so that the more fully simple commodity
production develops, the more the average prices over long periods uninterrupted
by external violent disturbances coincide with values within a negligible
margin. Thus, the Marxian law of value has general economic validity for
a period lasting from the beginning of exchange, which transforms products
into commodities, down to the 15th century of the present era. But the
exchange of commodities dates from a time before all written history —
which in Egypt goes back to at least 2500 B.C., and perhaps 5000 B.C.,
and in Babylon to 4000 B.C., perhaps to 6000 B.C.; thus, the law of value
has prevailed during a period of from five to seven thousand years. And
now, let us admire the thoroughness of Mr. Loria, who calls the value generally
and directly valid during this period a value at which commodities are
never sold nor can ever be sold, and with which no economist having a spark
of common sense would ever occupy himself!

We have not spoken of the merchant up to now. We could save the
consideration of this intervention for now, when we pass to the transformation
of simple into capitalist commodity production. The merchant was the revolutionary
element in this society where everything else was stable — stable, as
it were, through inheritance; where the peasant obtained not only his hide
of land, but his status as a freehold proprietor, as a free or enthralled
quit-rent peasant or serf, and the urban artisan his trade and guild privileges
by inheritance and almost inalienably, and each of them, in addition, his
customer, his market, as well as his skill, trained from childhood for
the inherited craft. Into this world then entered the merchant, with whom
its revolution was to start. But not as a conscious revolutionary; on the
contrary, as flesh of its flesh, bone of its bone. The merchant of the
Middle Ages was by no means an individualist; he was essentially an associate
like all his contemporaries. The mark association, grown out of primitive
communism, prevailed in the countryside. Each peasant originally had an
equal hide, with equal pieces of land of each quality, and a corresponding,
equal share in the rights of the mark. After the mark had become a closed
association, and no new hides were allocated any longer, subdivision of
the hides occurred through inheritance, etc., with corresponding subdivisions
of the common rights in the mark; but the full hide remained the unit,
so that there were half, quarter and eighth-hides with half, quarter and
eighth-rights in the mark. All later productive associations, particularly
the guilds in the cities, whose statutes were nothing but the application
of the mark constitution to a craft privilege instead of to a restricted
area of land, followed the pattern of the mark association. The central
point of the whole organization was the equal participation of every member
in the privileges and produce assured to the guild, as is strikingly expressed
in the 1527 licence of the Elberfeld and Barmen yarn trade. (Thun: Industrie
am Niederrhein, Vol. II, 164 ff.) The same holds true of the mine guilds,
where each share participated equally and was also divisible, together
with its rights and obligations, like the hide of the mark member. And
the same holds good in no less degree of the merchant companies, which
initiated overseas trade. The Venetians and the Genoese in the harbor of
Alexandria or Constantinople, each "nation" in its own fondaco —
dwelling, inn, warehouse, exhibition and salesrooms, together with central
offices — formed complete trade associations; they were closed to competitors
and customers; they sold at prices fixed among themselves; their commodities
had a definite quality guaranteed by public inspection and often by stamp;
they deliberated in common on the prices to be paid by the natives for
their products, etc. Nor did Hanseatic merchants act otherwise on the German
Bridge (Tydske Bryggen) in Bergen, Norway; the same holds true of their
Dutch and English competitors. Woe to the man who sold under the price
or bought above the price! The boycott that struck him meant at that time
inevitable ruin, not counting the direct penalties imposed by the association
upon the guilty. And even close associations were founded for definite
purposes, such as the Maona of Genoa in the 14th and 15th centuries, for
years the ruler of the alum mines in Phocaea in Asia Minor, as well as
of the Island of Chios; furthermore, the great Ravensberg Trading Company,
which dealt with Italy and Spain since the end of the 14th century, founding
branches in those countries; the German company of the Augsburgers: Fugger,
Welser, Vöhlin, Höchstetter, etc; that of the Nürnbergers: Hirschvogel
and others, which participated with a capital of 66,000 ducats and three
ships in the 1505-06 Portuguese expedition to India, making a net profit
of 150 per cent, according to others 175 per cent (Heyd; Levantehandel,
Vol. II, p.524); and a large number of other companies, "Monopolia," over
which Luther waxes so indignant.

Here, for the first time, we meet with a profit and a rate of
profit. The merchant's efforts are deliberately and consciously aimed at
making this rate of profit equal for all participants. The Venetians in
the Levant, and the Hanseatics in the North, each paid the same prices
for his commodities as his neighbor; his transport charges were the same,
he got the same prices as every other merchant of his "nation". Thus, the
rate of profit was equal for all. In the big trading companies, the allocation
of profit pro rata of the paid-in capital share is as much a matter
of course as the participation in mark rights pro rata of the entitled
hide share, or as the mining profit pro rata of the mining share.
The equal rate of profit, which in its fully developed form is one of the
final results of capitalist production, thus manifests itself here in its
simplest form as one of the points from which capital started historically,
as a direct offshoot in fact of the mark association, which in turn is
a direct offshoot of primitive communism.

This original rate of profit was necessarily very high. The business
was very risky, not only because of wide-spread piracy; the competing nations
also permitted themselves all sorts of acts of violence when the opportunity
arose; finally, sales and marketing conditions were based upon licences
granted by foreign princes, which were broken or revoked often enough. Hence,
the profit had to include a high insurance premium. The turnover was slow,
the handling of transactions protracted, and in the best periods — which,
admittedly, were seldom of long duration — the business was a monopoly
trade with monopoly profit. The very high interest rates prevailing at
the time, which always had to be lower on the whole than the percentage
of usual commercial profit, also prove that the rate of profit was on the
average very high.

But this high rate of profit, equal for all participants and obtained
through joint labor of the community, held only locally within the associations
— that is, in this case the "nation," Venetians, Genoese, Hanseatics,
and Dutchmen each had a special rate of profit, and at the beginning more
or less each individual market areas, as well. Equalization of these different
company profit rates took place in the opposite way, through competition.
First, the profit rates of the different markets for one and the same nation.
If Alexandria offered more profit for Venetian goods than Cyprus, Constantinople,
or Trebizond, the Venetians would start more capital moving towards Alexandria,
withdrawing it from trade with other markets. Then, the gradual equalization
of profit rates among the different nations, exporting the same or similar
goods to the same markets, had to follow, and some of these nations were
very often squeezed to the wall and disappeared from the scene. But this
process was being continually interrupted by political events, just as
all Levantine trade collapsed owing to the Mongolian and Turkish invasions;
the great geographic-commercial discoveries after 1492 only accelerated
this decline and then made it final.

The sudden expansion of the market area that followed the revolution
in communications connected with it, introduced no essential change at
first in the nature of trade operations. At the beginning, co-operative
companies also dominated trade with India and America. But in the first
place, bigger nations stood behind these companies. In trade with America,
the whole of great united Spain took the place of the Catalonians trading
with the Levant; alongside it, two countries like England and France; and
even Holland and Portugal, the smallest, were still at least as large and
strong as Venice, the greatest and strongest trading nation of the preceding
period. This gave the traveling merchant, the merchant adventurer of the
16th and 17th centuries, a backing that made the company, which protected
its companions with arms, also, more and more superfluous, and its expenses
an outright burden. Moreover, the wealth in a single hand grew considerably
faster, so that single merchants soon could invest as large sums in an
enterprise as formerly an entire company. The trading companies, wherever
still existent, were usually converted into armed corporations, which conquered
and monopolistically exploited whole newly discovered countries under the
protection and the sovereignty of the mother country. But the more colonies
were founded in the new areas, largely by the state, the more did company
trade recede before that of the individual merchant, and the equalization
of the profit rate became therewith more and more a matter of competition
exclusively.

Up to now, we have become acquainted with a rate of profit only
for merchant capital. For only merchant and usurers' capital had existed
up to that time; industrial capital was yet to be developed. Production
was still predominantly in the hands of workers owning their own means
of production, whose work therefore yielded no surplus-value to any capital.
If they had to surrender a part of the product to third parties without
compensation, it was in the form of tribute to feudal lords. Merchant capital,
therefore, could only make its profit, at least at the beginning, out of
the foreign buyers of domestic products, or the domestic buyers of foreign
products; only toward the end of this period — for Italy, that is, with
the decline of Levantine trade — were foreign competition and the difficulty
of marketing able to compel the handicraft producers of export commodities
to sell the commodity under its value to the exporting merchant. And thus
we find here that commodities are sold at their value, on the average,
in the domestic retail trade of individual producers with one another,
but, for the reasons given, not in international trade as a rule. Quite
the opposite of the present-day world, where the production prices hold
good in international and wholesale trade, while the formations of prices
in urban retail trade is governed by quite other rates of profit. So that
the meat of an ox, for example, experiences today a greater rise in price
on its way from the London wholesaler to the individual London consumer
than from the wholesaler in Chicago, including transport, to the London
wholesaler.

The instrument that gradually brought about this revolution in
price formation was industrial capital. Rudiments of the latter had been
formed as early as the Middle Ages, in three fields — shipping, mining,
and textiles. Shipping on the scale practiced by the Italian and Hanseatic
maritime republics was impossible without sailors, i.e., wage-laborers
(whose wage relationship may have been concealed under association forms
with profit-sharing), or without oarsmen — wage-laborers or slaves —

for the galleys of that day. The guilds in the ore mines, originally associated
workers, had already been converted in almost every case into stock companies
for exploiting the deposits by means of wage-laborers. And in the textile
industry, the merchant had begun to place the little master-weaver directly
in his service, by supplying him with yarn and having it made into cloth
for his account in return for a fixed wage — in short, by himself changing
from a mere buyer into a so-called contractor.

Here we have the first beginnings of the formation of capitalist
surplus-value. We can ignore the mining guilds as closed monopoly corporations.
With regard to the ship-owners, it is obvious that their profit had to
be at least as high as the customary one in the country, plus an extra
increment for insurance, depreciation of ships, etc. But how were matters
with the textile contractors, who first brought commodities, directly manufactured
for capitalist account, into competition with the commodities of the same
sort made for handicraft account?

Merchant capital's rate of profit was at hand to start with. Likewise,
it had already been equalized to an approximate average rate, at least
for the locality in question. Now, what could induce the merchant to take
on the extra business of a contractor? Only one thing: the prospect of
greater profit at the same selling price as the others. And he had this
prospect. By taking the little master into his service, he broke through
the traditional bonds of production within which the producer sold his
finished product and nothing else. The merchant capitalist bought the labor-power,
which still owned its production instruments but no longer the raw material.
By thus guaranteeing the weaver regular employment, he could depress the
weaver's wage to such a degree that a part of the labor-time furnished
remained unpaid for. The contractor thus became an appropriator of surplus-value
over and above his commercial profit. Admittedly, he had to employ additional
capital to buy yarn, etc., and leave it in the weaver's hands until the
article for which he formerly had to pay full price only upon purchasing
it, was finished. But, in the first place, he had already used extra capital
in most cases for advances to the weaver, who as a rule submitted to the
new production conditions only under the pressure of debt. And, secondly,
apart from that, the calculation took the following form:

Assume that our merchant operates his export business with capital
of 30,000 ducats, sequins, pounds sterling or whatever is the case. Of
that, say 10,000 are engaged in the purchase of domestic goods, whereas
20,000 are used in the overseas market. Say the capital is turned over
once in two years. Annual turnover = 15,000. Now, our merchant wants to
become a contractor, to have cloth woven for his own account. How much
additional capital must he invest? Let us assume that the production time
of the piece of cloth, such as he sells, averages two months — which is
certainly very high. Let us further assume that he has to pay for everything
in cash. Hence, he must advance enough capital to supply his weavers with
yarn for two months. Since his turnover is 15,000 a year, he buys cloth
for 2,500 in two months. Let us say that 2,000 of that represents the value
of yarn, and 500 weavers' wages; then our merchant requires an additional
capital of 2,000. We assume that the surplus-value he appropriates from
the weaver by the new method totals only 5 per cent of the value of the
cloth, which constitutes the certainly very modest surplus-value rate of
25 per cent. ( 2,000c + 500v + 125s; s' = 125/500 = 25%, p' = 125/2,500 = 5%).
Our man then makes an extra profit of 750 on his annual turnover of 15,000, and has thus got
his additional capital back in 2⅔ years.

But in order to accelerate his sales and hence his turnover, thus
making the same profit with the same capital in a shorter period of time,
and hence a greater profit in the same time, he will donate a small portion
of his surplus-value to the buyer — he will sell cheaper than his competitors.
These will also gradually be converted into contractors, and then the extra
profit for all of them will be reduced to the ordinary profit, or even
to a lower profit on the capital that has been increased for all of them.
The equality of the profit rate is re-established, although possibly on
another level, by a part of the surplus-value made at home being turned
over to the foreign buyers.

The next step in the subjugation of industry by capital takes
place through the introduction of manufacture. This, too, enable the manufacturer,
who is most often his own export trader in the 17th and 18th centuries
— generally in Germany down to 1850, and still today here and there —
to produce cheaper than his old-fashioned competitor, the handicraftsman.
The same process is repeated; the surplus-value appropriated by the manufacturing
capitalist enables him (or the export merchant who shares with him) to
sell cheaper than his competitors, until the general introduction of the
new mode of production, when equalization against takes place. The already
existing mercantile rate of profit, even if it is levelled out only locally,
remains the Procrustean bed in which the excessive industrial surplus-value
is lopped off without mercy.

If manufacturing sprung ahead by cheapening its products, this
is even more true of modern industry, which forces the production costs
of commodities lower and lower through its repeated revolutions in production,
relentlessly eliminating all former modes of production. It is large-scale
industry, too, that thus finally conquers the domestic market for capital,
puts an end to the small-scale production and natural economy of the self-sufficient
peasant family, and places the entire nation in service of capital. Likewise,
it equalizes the profit rate of the different commercial and industrial
branches of business into one general rate of profit, and finally
ensures industry the position of power due to it in this equalization by
eliminating most of the obstacles formerly hindering the transfer of capital
from one branch to another. Thereby the conversion of values into production
prices is accomplished for all exchange as a whole. This conversion therefore
proceeds according to objective laws, without the consciousness or the
intent of the participants. Theoretically, there is no difficulty at all
in the fact that competition reduces to the general level profits which
exceed the general rate, thus again depriving the first industrial appropriator
of the surplus-value exceeding the average. All the more so in practice,
however, for the spheres of production with excessive surplus-value, with
high variable and low constant capital — i.e., with low capital composition
— are by their very nature the ones that are last and least completely
subjected to capitalist production, especially agriculture. On the other
hand, the rise of production prices above commodity values, which is required
to raise the below-average surplus-value, contained in the products of
the spheres of high capital composition, to the level of the average rate
of profit, appears to be extremely difficult theoretically, but is soonest
and most easily effected in practice, as we have seen. For when commodities
of this class are first produced capitalistically and enter capitalist
commerce, they compete with commodities of the same nature produced by
pre-capitalist methods and hence dearer. Thus, even if the capitalist producer
renounces a part of the surplus-value, he can still obtain the rate of
profit prevailing in his locality, which originally had no direct connection
with surplus-value because it had arisen from merchant capital long before
there was any capitalist production at all, and therefore before an industrial
rate of profit was possible.

1. Somewhat later, the same gentleman “well-known through his fame” (to use Heine’s phrase) also felt himself compelled to reply to my preface to Volume III after it was published in Italian in the first number of Rassegna in 1895. The reply is printed in the Riforma Sociale of February 25, 1895. After having lavished upon me the inevitable (and therefore doubly repulsive) adulation, he states that he never thought of filching for himself Marx’s credit for the materialist conception of history. He acknowledged it as early as 1885 – to wit, quite incidentally in a magazine article. But in return he passes over it in silence all the more stubbornly precisely where it is due, that is, in his book on the subject, where Marx is mentioned for the first time on page 129, and then merely in connection with small landed property in France. And now he bravely declares that Marx is not at all the originator of this theory; if Aristotle had not already suggested it, Harrington undoubtedly proclaimed it as early as 1656, and it had been developed by a Pleiad of historians, politicians, jurists and economists long before Marx. All of which is to be read in the French edition of Loria’s book. In short, the perfect plagiarist. After I have made it impossible for him to brag any more with plagiarisms from Marx, he boldly maintains that Marx adorns himself with borrowed plumes just as he himself does. From my other attacks, Loria takes up the one that, according to him, Marx never planned to write a second or indeed a third volume of Capital. “And now Engels replies triumphantly by throwing the second and third volumes at me ... excellent! And I am so pleased with these volumes, to which I owe so much intellectual enjoyment, that never was a victory so dear to me as today this defeat is – if it really is a defeat. But is it actually? Is it really true that Marx wrote, with the intention of publication, this mixture of disconnected notes that Engels, with pious friendship, has compiled? Is it really permissible to assume that Marx ... confided the coronation of his work and his system to these pages? Is it indeed certain that Marx would have published that chapter on the average rate of profit, in which the solution, promised for so many years, is reduced to the most dismal mystification, to the most vulgar playing with phrases? It is at least permissible to doubt it.... That proves, it seems to me, that Marx, after publishing his magnificent (splendido) book, did not intend to provide it with a successor, or else wanted to leave the completion of the gigantic work to his heirs, outside his own responsibility.”

So it is written on p. 267. Heine could not speak any more contemptuously of his philistine German public than in the words: “The author finally gets used to his public as if it were a reasonable being.” What must the illustrious Loria think his public is?

In conclusion, another load of praise comes pouring down on my unlucky self. In this our Sganarelle puts himself on a par with Balaam, who came to. curse but whose lips bubbled forth “words of blessing and love” against his will. For the good Balaam was distinguished by the fact that he rode upon an ass that was more intelligent than its master. This time Balaam evidently left his ass at home.

II. The Stock Exchange

1. The position of the stock exchange in capitalist production in general is
clear from Vol. III, Part 5, especially Chapter [27]. But since
1865, when the book was written, a change has taken place which today assigns a
considerably increased and constantly growing role to the stock exchange, and
which, as it develops, tends to concentrate all production, industrial as well
as agricultural, and all commerce, the means of communication as well as the
functions of exchange, in the hands of stock exchange operators, so that the
stock exchange becomes the most prominent representative of capitalist
production itself.

2. In 1865 the stock exchange was still a secondary element in the
capitalist system. Government bonds represented the bulk of exchange securities,
and even their sum-total was still relatively small. Besides, there were
joint-stock banks, predominant on the continent and in America, and just
beginning to absorb the aristocratic private banks in England, but still
relatively insignificant en masse. Railway shares were still
comparatively weak compared to the present time. There were still only few
directly productive establishments in stock company form — and, like the banks,
most of all in the poorer countries: Germany, Austria, America, etc. The
"master’s eye" was still an unconquered superstition.

At that time, the stock exchange was still a place where the capitalists
took away each other’s accumulated capital, and which directly concerned
the workers only as new proof of the demoralising general effect of capitalist
economy and as confirmation of the Calvinist doctrine that predestination (alias
chance) decides, even in this life, blessedness and damnation, wealth, i.e.,
enjoyment and power, and poverty, i.e., privation and servitude.

3. Now it is otherwise. Since the crisis of 1866 accumulation has proceeded
with ever-increasing rapidity, so that in no industrial country, least of all in
England, could the expansion of production keep up with that of accumulation, or
the accumulation of the individual capitalist be completely utilised in the
enlargement of his own business; English cotton industry as early as 1845; the
railway swindles. But with this accumulation the number of rentiers, people
who were fed up with the regular tension in business and therefore wanted merely
to amuse themselves or to follow a mild pursuit as directors or governors of
companies, also rose. And third, in order to facilitate the investment of this
mass floating around as money-capital, new legal forms of limited liability
companies were established wherever that had not yet been done, and the
liability of the shareholder, formerly unlimited, was also reduced ± [more
or less] (joint-stock companies in Germany, 1890. Subscription 40 per cent!).

4. Thereafter, gradual conversion of industry into stock companies. One
branch after another suffers this fate. First iron, where giant plants are now
necessary (before that, mines, where not already organised on shares). Then the
chemical industry, likewise machinery plants. On the continent, the textile
industry; in England, only in a few areas in Lancashire (Oldham Spinning Mill,
Burnley Weaving Mill, etc., tailor co-operatives, but this is only a preliminary
stage which will again fall into the masters’ hands at the next crisis),
breweries (the American ones sold a few years ago to English capital, then
Guinness, Bass, Allsopp). Then the trusts, which create gigantic enterprises
under common management (such as United Alkali). The ordinary individual firm is
more and more only a preliminary stage to bring the business to the point where
it is big enough to be "founded."

Likewise in trade: Leafs, Parsons, Morleys, Morrison, Dillon — all founded.
The same in retail stores by now, and not merely under the cloak of co-operation
à la "stores."

Likewise banks and other credit establishments even in England. A tremendous
number of new banks, all shares delimited. Even old banks etc., are converted, with seven private shareholders, into limited companies.

5. The same in the field of agriculture. The enormously expanded banks,
especially in Germany under all sorts of bureaucratic names, more and more the
holders of mortgages; with their shares the actual higher ownership of landed
property is transferred to the stock exchange, and this is even more true when
the farms fall into the creditors’ hands. Here the agricultural revolution
of prairie cultivation is very impressive; if it continues, the time can be
foreseen when England’s and France’s land will also be in the hands of
the stock exchange.

6. Now all foreign investments in the form of shares. To mention England
alone: American railways, North and South (consult the stock exchange list),
Goldberger, etc.

7. Then colonisation. Today this is purely a subsidiary of the stock
exchange, in whose interests the European powers divided Africa a few years ago,
and the French conquered Tunis and Tonkin. Africa leased directly to companies
(Niger, South Africa, German South-West and German East Africa), and Mashonaland
and Natal seized by Rhodes for the stock exchange.