by Frederick Engels

Part 2

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 regular 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 [3] 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, Vohlin, Hochstetter, etc; that of the Nurnbergers: 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 prices, 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.

[ We get: ] 2,000 c + 500 v + 125 s;

125 125
s' = ----- = 25% p' = ----- = 5%
500 2,500

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 2 2/3 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 per-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.

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