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 Post subject: Marxist theory of competition
PostPosted: Sat Jul 02, 2016 12:09 pm 
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In Volume 3 of Capital, Marx makes allusion several times to a more thorough analysis of competition in capitalism that didn't have a place in Volume 3. I'm unaware of any attempts at analysing capitalist competition in a Marxist fashion so I'll give it a crack myself now.

Das Kapital Chapter 3 wrote:
All the linen in the market counts but as one article of commerce, of which each piece is only an aliquot part.


The general method of competition under capitalist production is essentially one of comparison. Each producer of commodities has expended constant capital and variable capital in the production of the value of the commodity, however not necessarily in the same ratio. Additionally, although each producer of commodities has extracted a surplus value, the rate of surplus value may be different amongst the individual producers. In the act of competition each of their commodities comes to embody the ratio of constant and variable capital expended as well as paid and unpaid labour. Let us assume that the average organic composition of capital is 70:30 constant to variable capital, that the average rate of profit is 20%, and therefore that the average rate of surplus value is 66.66%. In competition, all individual commodities are then compared to the social average commodity and treated as such, thus allowing the more productive producers to extract additional surplus value above and beyond what they actually created, while punishing the less productive producers by forbidding them from realising the surplus labour contained in their product. This ties in fairly directly with the tendency for rates profits to equalise, because each individual commodity is treated as the social average commodity, each commodity is allowed to take the same portion of surplus value relative to the amount of total capital advanced.

Let us assume that the current effective demand for consumption of a given commodity is equal to $10,000. Let us further assume that this particular market is relatively stable with only two different producers A and B, both of which have the average organic composition of capital and rate of surplus value, and thus both of which achieve the average rate of profit. A further assumption is that producer A produces $7,000 worth of commodities and producer B produces $3,000 worth of commodities.

Das Kapital Chapter 3 wrote:
Lastly, suppose that every piece of linen in the market contains no more labour-time than is socially necessary. In spite of this, all these pieces taken as a whole, may have had superfluous labour-time spent upon them.


Now let us assume that producer B wishes to expand his production and create $5,000 worth of commodities, such that $12,000 worth of commodities is now produced in this sphere of production, however, the effective demand continues to remain constant at $10,000. Thus on the one hand we have commodities of a value of $12,000, and on the other a society that can only pay $10,000 for these. The producers could continue to sell their commodities at their old prices, however, in that case $2,000 of commodities would remain unsold in the hands of one or the other or a portion of some in each producer. The other option is to reduce the prices of their commodities such that the total prices of commodities once again comes out to $10,000. As Marx indicates above, in this case the component part of value that suffers is the labour-time, more specifically the surplus labour to a tune of $2,000 is lost. Either action the capitalists choose to take, they are out $2,000 of their expected income. They may either continue with the present course of production and accept a below average rate of profit, or reduce the scale of their production to resume an average rate of profit.

Let us assume the opposite case, such that producer B either reduces his production from $3,000 to some smaller number or drops out of production all together. We will assume he drops out completely. In that case the effective demand for the commodity remains the same, but the value of the commodities to be sold has dropped while retaining the same organic composition. In this case producer A can sell his commodities valued at $7,000 for $10,000 netting this producer an extra rate of profit above and beyond the normal. At this point producer A has the option to expand his production to produce $10,000 worth of commodities and resume the average rate of profit, or to continue producing at his current scale and enjoy the above average rate of profit. In either case, the absolute value of surplus value he extracts is the same, but in the latter case idle money capital is enabled to become productively engaged. And if producer A does not expand his production, other idle money capital may intrude upon this sphere of production until it also achieves the average rate of profit, thus reducing the absolute amount of surplus value producer A can obtain.

It is clear, in this case, why capitalists do not tend to make further investments where the rate of profit is average, and only invest where above average rates of profit exist.

Let us assume that the current effective demand for consumption of a given commodity is equal to $10,000 as before. Let us further assume, as before, that this particular market is relatively stable with only two different producers A and B. Producer A has an organic composition of capital of 90:10 with a rate of surplus value of 200%. Constant capital for Producer A is therefore equal to $3,750, variable capital is equal to $416.66, and surplus value is equal to $833.33. Producer B has an organic composition of capital of 50:50 with a rate of surplus value of 40%. Constant capital for Producer B is therefore equal to variable capital both of which have a value of $2,083.33, the surplus value is equal to $833.33.

In this case, taking the total social production of this commodity, the average organic composition of capital,rate of surplus value, and rate of profit, remains the same as assumed above assuming that each capitalist produces enough commodities to meet half of the effective demand.

Now let us assume that producer A decides to employ additional capital in this sphere of production such that instead of producing $5,000 worth of commodities, he now produces $7,000 worth of commodities. The total value of commodities produced in this sector comes out to $12,000.

Unlike before, however, the average organic composition of capital, and hence the rate of surplus value will now be changed by A's greater investment. The new value breakdown for A's commodity is $583.33 variable capital, $1,166.66 surplus value, and $5,250 constant capital. Compared with B's commodity the new average organic composition of capital in this sector is now 73.33% constant capital and 26.66% variable capital with a new average rate of surplus value of 75%, the rate of profit, however, remains unchanged.

Additionally, as before there are now commodities with a value of $12,000 that can only be realised at a price of $10,000. But now the average commodity has a different value composition such that the total value composition of salable commodities is $2,221.94 variable capital, $1,666.47 surplus value, and $6,111.59 constant capital. Or in other words, $8,333.53 advanced capital and $1,666.47 profit.

If we want to make the math a little easier on ourselves we can assume that each individual commodity has a price of $1,000 such that 10 commodities suffice to meet the effective demand. Producer A must advance $833.33 per commodity, and Producer B must advance $833.32. Therefore we find ourselves in an identical situation as the first scenario where both producers had an identical organic composition of capital.

For the next update I intend on showing the changes that occur when the surplus value generated by Producer A and B in the second scenario are not identical.

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