The development of

by Fred Moseley

Department of Economics

Mount Holyoke College

South Hadley MA 01075

E-mail: fmoseley@mhc.mtholyoke.edu

AUGUST 1995

THE DEVELOPMENT OF

MARX'S THEORY OF THE DISTRIBUTION OF SURPLUS-VALUE
Marx's theory of the production and distribution of surplus-value is based on a fundamental methodological premise, which has not been sufficiently recognized: that the total amount of surplus-value is determined prior to and independent of the division of this total amount into individual parts. The individual parts of surplus-value are then determined at a subsequent stage of the analysis, with the predetermined total amount of surplus-value taken as a given magnitude. This premise was first discussed by Marx in the Grundrisse with respect to the equalization of rates of profit across different branches of production. In the second draft of Capital, written in 1861-63, parts of which have been only recently published in English, Marx also began with this premise as he worked out his theories of rent, interest, and merchant profit. In the remaining drafts of Capital, this fundamental premise is consistently adhered to and emphasized, especially in Volume 3, in which the distribution of surplus-value is the main subject.

Marx expressed this fundamental premise of his theory concerning the prior determination of the total amount of surplus-value in terms of the distinction between the stages of analysis of "capital in general" and "competition" (or "many capitals"). Capital in general refers to the essential properties that all capitals have in common. The most important common property of capitals is their capacity for self-expansion, i.e. their ability to produce surplus-value. Therefore, the main question addressed in the analysis of capital in general is the determination of the total amount of surplus-value produced in the capitalist economy as a whole. Competition refers to the relations among capitals, and, in particular, to the distribution of surplus-value among capitals, first among the different branches of production and then the further division of surplus-value into industrial profit, merchant profit, interest, and rent.

Unfortunately, this fundamental premise of Marx's theory has been almost totally overlooked in the vast literature about Marx's theory, at least in the English literature. In particular, this premise has not been recognized in the long-standing debate over the so-called "transformation problem" in Marx's theory. The main exception to this oversight has been Rosdolsky (1977, pp. 41-50 and 367-75), who emphasized that Marx's explanation of equal rates of profit across industries in the Grundrisse was based on this principle (another exception is Foley 1986). However, even Rosdolsky's discussion is limited, because it applies only to the Grundrisse and to Marx's theory of equal rates of profit, and not to later drafts of Capital nor to the other components of surplus-value.

In an earlier paper (Moseley 1993a), I have attempted to show the importance of this methodological premise for Marx's theory of equal rates of profit and prices of production, i.e. for Marx's solution to the "transformation problem". In particular, I have argued that the widespread interpretation of Marx's theory in terms of linear production theory, which I call the "neo-

Ricardian" interpretation, is erroneous because it ignores this fundamental premise of Marx's theory (and for other reasons as well)ⁱ and is instead based on a very different premise. In Marx's theory, the rate of profit is determined at the level of abstraction of capital in general as the ratio between the total amount of surplus-value and the total capital invested in the capitalist economy as a whole. This rate of profit is then taken as given in the determination of prices of production. In the neo-Ricardian interpretation of Marx's theory, there is no distinction between the levels of abstraction of capital in general and competition. Likewise, there is no recognition of the prior determination of the rate of profit in the analysis of prices of production. Instead, the rate of profit is determined simultaneously along with prices of production. It follows from this fundamental misinterpretation that the main neo-Ricardian criticism of Marx's theory - that Marx's solution to the "transformation problem" is logically incomplete and contradictory - is not correct. If Marx's theory is correctly interpreted, including this premise of the prior determination of the total amount of surplus-value and the general rate of profit, then there is no logical error in his solution to the "transformation problem".

The main purpose of the present paper is to extend this earlier paper by providing substantial further textual evidence of this important methodological premise in Marx's theory of the production and distribution of surplus-value. The various drafts of Capital will be examined to show their consistent adherence to this fundamental premise. Not only is Marx's theory of equal rates of profit considered, but also his theory of the other components of surplus-value, in order to demonstrate his consistent adherence to this premise and the logical connection between these different aspects of his theory of the distribution of surplus-value. The burden of interpretation will then be on those - especially the neo-Ricardians - who have so far ignored this fundamental premise of Marx's theory.

The Grundrisse is concerned almost entirely with an analysis of capital in general. There is very little discussion of the distribution of surplus-value. The only aspect of the distribution of surplus-value which is discussed is the equalization of profit rates across different branches of production, and this is discussed only very briefly and in passing in a few places. The clearest statement of the premise of the prior determination of the total amount of surplus-value is the following:

A few pages later, Marx comments:

Thus, although Marx left the elaboration of his theory of equal rates of profit to the subsequent analysis of competition, he was already clear in the Grundrisse that this theory would be based on premise that the total amount of surplus-value is determined prior to its distribution among individual branches of production.

In the summer of 1861, Marx began working on a second draft of Capital. He continued to work on this manuscript for the next two years, writing at a very prolific rate and producing what would eventually be published as five volumes. About two-thirds of this manuscript has been previously been published in English as the Theories of Surplus-Value. The entire manuscript, including the previously unpublished parts, has recently been published in English as Volumes 30-34 of the Marx-Engels Collected Works, which is a translation of the authoritative German collection Marx-Engels Gesamtausgabe, published in the 1970s. The publication of this entire manuscript is an important event in Marxian scholarship. This manuscript provides an important link between the Grundrisse and Capital and should provide many insights into the logical structure and content of Capital, similar perhaps to the publication of the English translation of the Grundrisse in the 1970s. It should be carefully studied by all those who wish to understand Marx's Capital. (Oakley 1983, Chapter 6, written before the publication of the complete English edition, provides a good short introduction to the 1861-63 manuscript.)

Marx began his work on this manuscript with what would later become Part 2 of Volume 1 of Capital ("The Transformation of Money into Capital"), since he had already reworked and published what later became Part 1 as A Contribution to the Critique of Political

Economy. He wrote drafts of what later became Parts 2-4 of Volume 1, which contain the key chapters of his theory of surplus-value, absolute surplus-value (the working day), and relative surplus-value (technological change). Marx then broke off to work on the "Theories of Surplus-Value", which was originally intended to be a critical survey of the attempts by the classical economists to explain the origin and determination of surplus-value. Marx's original plan seems to have been to include this critical survey of the theories of surplus-value following his own theory and in the same volume, similar to what he had done for the theories of value and money in the A Contribution ... . However, Marx soon went far beyond this original intention to discuss not only the production, but also the distribution, of surplus-value. Marx used this extended critique of the classical economists to work out in greater detail his own theory of the distribution of surplus-value. The following discussion will concentrate on those parts of the "Theories of Surplus-Value" and the remaining previously unpublished parts of the 1861-63 manuscript which deal with the distribution of surplus-value.

Marx began his critical survey of the classical economists’ theories of surplus-value with the following "general observation":

All economists share the error of examining surplus-value not as such, in its pure form, but in the particular forms of profit and rent. (MECW.30. 348; TSV.I. 40)

Quantitatively, this means that the classical economists shared the error of not distinguishing between the determination of the total amount of surplus-value and the distribution of surplus-value in the specific forms of profit, rent, etc. Thus, Marx had this crucial distinction clearly in mind as he began the "Theories of Surplus-Value".

Marx then wrote what we know as Volume 1 of Theories of Surplus-Value, which is mainly about Smith's theory value and distribution and the concepts of productive and unproductive labor. Marx's work then took a surprising turn. Instead of next considering Ricardo's theory of surplus-value and perhaps the later Ricardian economists, as Marx originally planned (MECW.31. 583-84, note 2), Marx next discussed a more recent work, published in 1851, by Rodbertus, who had attempted to develop a new theory of rent along Ricardian lines, but with an attempted solution to Ricardo's problem of absolute rent (Ricardo's theory could not explain how the least fertile land could receive a rent). This subject is out of place in the manuscript both chronologically and logically, since it deals with rent, a form of the distribution of surplus-value, rather than the production of surplus-value. Marx labeled this section of the manuscript a "Digression".

It appears that the immediate reason for this surprising turn was mostly practical and fortuitous. Lassalle had loaned Marx a copy of Rodbertus' book the year before and had recently written to Marx that he wanted his book back. (MECW.31. 593, note 99; TSV. II. 633-34, note 1) Therefore, Marx studied Rodbertus' book while he still had the opportunity to do so. The book turned out to be more interesting than Marx expected and appears to have stimulated Marx's thinking about rent and about the distribution of surplus-value in general. It started Marx on an extended theoretical excursion for most of the next year, during which he began to work out the details of his own theory of the distribution of surplus-value, based on the premise of the prior determination of the total amount of surplus-value. This important excursion will now be examined in some detail.

Early in the section on Rodbertus, Marx began to emphasize that the theory of rent must be understood in connection with the equalization of profit rates across individual branches of production. Therefore, he began to sketch out the details of his theory of the equalization of profit rates and prices of production (which Marx here called "average prices" or "cost prices") for the first time. (MECW. 31. 260-64 and 297-305; TSV.II. 25-30 and 64-71) In these sketches, Marx emphasized that the general rate of profit to which all individual rates of profit are equalized is determined by the ratio of the total amount of surplus-value divided by the total amount of capital invested. The total amount of surplus-value, Marx assumed, is determined by a prior analysis of capital in general. This total amount of surplus-value is then distributed among the individual branches of production by means of commodities selling at average prices which differ from their values and which are determined in part by this general rate of profit. In this way, each capital is treated as a "shareholder of the aggregate capital," and receives its share of the total surplus-value, according to its own magnitude. Capitalists are like "hostile brothers [who] divide among themselves the loot of other people's labor" (MECW.31. 264; TSV.II. 29). The total magnitude of this "loot" has already been determined by the prior analysis of capital in general.

Rent is then explained as a further application of this theory of the general rate of profit and prices of production. Rent is a part of the total surplus-value which landlords are able, by their monopoly of the land (and other natural resources), to appropriate for themselves, rather than this surplus-value being distributed among all capitalists. In this theory of rent, the total amount of surplus-value is again taken as a given magnitude, as determined by the prior analysis of capital in general. This total amount of surplus-value is "split" into profit and rent, and rent does not enter into the equalization of profit rates across industries.

This ownership [of natural resources] is a means of obstructing the process which takes place in the rest of the capitalist spheres of production, and of holding on to this surplus-value created in this particular sphere, so that it is divided between the capitalist and the landowner in that sphere of production itself. (MECW.31. 276; TSV.II. 42).

Marx also outlined his general solution to Ricardo's problem of absolute rent, i.e. rent on the least fertile land which is not due to a monopoly price of the agricultural product, (i.e. to a price greater than the value of the product). Marx argued that absolute rent in this sense is possible because the composition of capital in agriculture may be less than the average composition for the total economy (and, in fact, was less in England at the time and tended to be less for all capitalist countries). In this case, the value of agricultural goods is greater than their price of production. Hence the actual price of agricultural goods may rise above their price of production without necessarily being greater than their value. This excess of the actual price over the price of production is the source of absolute rent on the least fertile land. Ricardo and Rodbertus had not been able to explain the possibility of absolute rent because they did not distinguish between the value and the price of production of commodities.

Soon after working on this section on Rodbertus, Marx wrote an important letter to Engels in which he summarized these new theoretical developments. Originally, Marx had planned to consider rent only in Book 2 on landed property, as part of his projected six books on political economy (Cr. 19; SC. 96-97). However, he now realized more clearly that rent is an aspect of the distribution of surplus-value and is intimately connected with the equalization of profit rates. Therefore, he decided to bring the discussion of rent into the first book on Capital, in the later sections on competition and the distribution of surplus-value. The letter to Engels begins:

I now intend after all to bring the theory of rent already into this volume as a supplementary chapter, i.e., as an illustration of a principle laid down earlier.

(SC. 120).

Marx then presented a brief sketch of this theory of prices of production (or "cost prices") and his theory of rent. Once again, the total amount of surplus-value and the general rate of profit are taken as given in the determination of "cost-prices" and in the division of surplus-value into profit and rent.
b. Ricardo

One of the main conclusions of Marx's discussion of Rodbertus is that both Rodbertus and Ricardo made the mistake, following Smith, of assuming that the cost prices (or prices of production) of individual commodities are equal to their values (i.e. of "identifying cost prices and values") and that this false assumption led to their erroneous theories of rent. Therefore, Marx next discussed "Ricardo's and Smith's Theory of Cost Price". (MECW.31. 387-456; TSV. II. Chapter 10) In this section, Marx argued that Ricardo was not able to provide a satisfactory theory of cost prices because he failed to follow the correct logical method with respect to the production and distribution of surplus-value. Instead of first determining the total amount of surplus-value and the general rate of profit and then determining cost prices on the basis of this predetermined general rate of profit, Ricardo simply assumed a given rate of profit (without explaining its determination) and examined the extent to which the assumption of equal profit rates was consistent with the determination of prices by labor-times. To quote this important methodological criticism at some length:

Ricardo's method is as follows: He begins with the determination of the magnitude of the value of the commodity by labor-time and then examines whether the other economic relations and categories contradict this determination of value or to what extent they modify it. The historical justification of this method of procedure, its scientific necessity in the history of economics, are evident at first sight, but so too is, at the same time, its scientific inadequacy. This inadequacy not only shows itself in the method of presentation (in a formal sense) but leads to erroneous results because it omits some essential links and directly seeks to prove the congruity of the economic categories with one another. (MECW. 390; TSV.II. 164-65; emphasis added)

Instead of postulating this general rate of profit, Ricardo should have examined how far its existence is consistent with the determination of value by labor-time and he would have found that instead of being consistent with it, prima facie, it contradicts it, and that its existence would therefore have to be explained through a number of intermediary stages, a procedure very different from merely including it under the law of value. He would then have gained an altogether different insight into the nature of profit and would not have identified it directly with surplus-value. (MECW.31. 401; TSV.II. 174; emphasis added)

The most important "essential link" and "intermediary stage" omitted by Ricardo is the prior determination of the total amount of surplus-value and the general rate of profit, which is then taken as given in the subsequent determination of cost prices. Marx summarized his discussion of Ricardo's faulty logical method in the following passage:

The equalization of the surplus-values in the different spheres of production does not affect the absolute size of this total surplus-value; but merely alters it distribution among the different spheres of production. The determination of this surplus-value itself, however, only arises out of the determination of value by labor-time. Without this, the average profit is the average of nothing, pure fancy. And it could then equally well be 1,000 per cent or 10 per cent... One can see that though Ricardo is accused of being too abstract, one would be justified in accusing him of the opposite: lack of power of abstraction, inability, when dealing with the values of commodities, to forget profits, a factor which confronts him as a result of competition. (MECW.31. 416; TSV.II. 190-91; emphasis added)

Later in the manuscript, after sections on Ricardo's theory of rent, Smith's theory of rent, and Ricardo's theory of surplus-value (which contain nothing new for our purposes), Marx returned to Ricardo's theory of profit. Here again, Marx emphasized that a correct understanding of equal rates of profit requires the "intermediary link" of the prior determination of the total amount of surplus-value. Equal rates of profit are bound to be misunderstood if they:

are not connected by a series of intermediary links with the general laws of value etc: in short, if profit and surplus-value are treated as identical, which is only correct for the aggregate capital. Accordingly, Ricardo has no means for determining the general rate of profit. (MECW. 32. 61; TSV.II. 427)

Marx also emphasized again the prior determination of the general rate of profit as the ratio of total surplus-value to total capital:

The surplus-value thus distributed ... constitutes the average profit or the general rate of profit, and as such it enters into the costs of production of every sphere of production. (MECW.32. 69; TSV.II. 433)

The next important section of the 1861-63 manuscript for our purposes is the section entitled "Revenue and Its Sources. Vulgar Political Economy", which is a first draft of what later became Part 7 of Volume 3 of Capital. This section includes Marx's first extended discussion of interest, another form of the distribution of surplus-value, besides profit and rent. Marx emphasized that interest, like rent, is a part of the total surplus-value and that the total surplus-value is determined prior to its division into profit, rent, and interest.

Marx also contrasted his premise of the prior determination of the total amount of value and surplus-value with the diametrically opposed premise of the vulgar economists, according to which the surplus-value is determined as the sum of profit plus interest plus rent.

But the whole matter is mystified because these different parts of surplus-value [profit, rent, and interest; FM] acquire an independent form, because the accrue to different people, because the titles to them are based on different elements, and finally because of the autonomy with which certain of these parts of surplus-value confront the production process as its conditions. From parts into which value can be divided, they become independent elements which constitute value ... (MECW.31. 511; TSV.III. 511; emphasis added).