Political Economist

8. How does Marx approach the question of aggregate profits? Where do aggregate profits come from, and why and how? What is the significant of the distinction between profits arising from a transfer of value or wealth, and profit based on the extraction of a surplus product?

* All of other profits and revenues (the revenue of the state, financial capital’s arbitrage, taxes, stock and bond dividends etc,) are derived from the surplus value produced in the capitalist production process. That is why Prof. Shaikh calls Marx’s analysis of profit as “aggregate profit.”

Marx’s theory of profit is one of the most significant contributions in the development of the labor theory of value. Marx deals with this problem from the analysis of the money (capital) and exchange (circuit of capital). However before reviewing his analysis of aggregate profit, it is necessary for us to distinguish two different kinds of gaining methods of profit in Marx’s perspective.

First of all, Marx differentiates profit on alienation from aggregate profit appropriated form the capitalist labor process. The former is profit on transfer of wealth, which was dominant characteristics feature of Mercantilist capitalism. Individual trading profit arises whenever a commodity is resold at a profit. This profit is originated from the individual entrepreneurial ability to ‘buy cheap and sell dear.’ But from the perspective of the system as a whole, this transaction simply serves to share out the total selling price.

Thus the increase of wealth of one country or region is accompanied by the loss of the same amount of wealth of the other country or region. On the contrary, Marx emphasizes the latter case, which is the production of surplus product within the typical capitalist mode of production. This is the origin of surplus value and Marx describes this process as the intrinsic characteristics of industrial capitalism.

With regard to the analysis of the surplus value, Marx begins his analysis from the analysis of exchange of capital and labor. In contrast to simple money circuit (circuit of revenue), which can be summarized as C-M-C, the circuit of capital starts from money capital which is invested in order to make more money at the end of the process compared to the original money capital.

This circuit of capital can be summarized as follow: M-C-M’ in other words, a certain amount of Money capital (M) is invested on particular production sector. This money capital is used to buy certain amount of labor power and means of production (machinery, raw materials, etc). From this initial stage, capitalist organized labor and production process in order to produce certain amount of commodity. After the production, capitalist sell his/her commodity (final physical form of capital) on the market in order to make more money (final money form of capital; M’)

While analyzing the circuit of capital, Marx raised a question: Where does increased money come from? According to Marx, this profit comes from labor power. This source of profit for capital, which is called ‘surplus value,’ is extracted from surplus labor time. In order to explain this mechanism it seems necessary for us to introduce distinctive concept of capital in Marx.

The capital in production is composed of two components: constant capital (C) and variable capital (V). Unlike Ricardo’s distinction between ‘fixed capital’ and ‘circulating capital,’ this distinction has an important meaning because with this distinction Marx was able to explain the mechanism of appropriation of surplus value. According to Marx, in the capitalist production process, total labor time (W) is composed of labor value of means of production (C) and living human labor estimated by time (L).

If V is socially necessary labor time required for commodity production, or socially necessary labor time necessary for laborer’s reproduction, S is surplus labor time. Thus W = C+V+S. In this analysis, the surplus value or surplus labor time is the above and beyond the necessary labor time. Marx analyzes this surplus labor time and surplus value is the secret source of the aggregate profit for capital.

This distinction between two different kinds of profit has significances in understanding current real world economy. Even though the exploitation of surplus value is unique characteristic feature and dominant basis of modern capitalism, the understanding of the fact that appropriation of surplus value is not the only source of profit open our eyes to the necessity of the historical and empirical research to the problems of transfer of profit and the current economic situation of the Third World or developing countries. In this sense, the concept and the existence of the transfer of profit can be utilized in the context of the analysis of the transfer of value from non-capitalist sphere, or periphery to the center of capitalist economy system.