First Debates in Value Theory, 1895–1914

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As we saw in the previous chapter, Marx had alluded briefly in volume I of Capital to the complications posed for his theory of value by the existence of free competition. In part II of the third volume he described the problem in considerable detail and set out his own solution to it. Competition in the market for labour power equalises the rate of exploitation in all industries, since in equilibrium both the working day and the real wage will be uniform, and so too will be the amount of surplus value that capitalists can extract from each worker employed. If the organic composition of capital is not the same in every sector — and there is no economic mechanism ensuring that it will be — rates of profit will differ across industries. The rate of profit in industry i is defined as the ratio of surplus value to the total capital (constant plus variable) employed: ri=si/(ci + vi). Dividing the top and bottom of this fraction by vi, this can be written as ri=(si/vi)/(ci/vi + vi/ vi)=e/(ki + 1), where e( = si/vi = sj/vj) is the common rate of exploitation and ki( = ci/vi) is the organic composition. Hence the rate of profit will be higher, the lower the organic composition of capital. But this is inconsistent with competition in commodity markets, which, underpinned by the free mobility of capital from one industry to another, tends to equalise the rate of profit in all branches of production. There is thus an apparent contradiction between the law of value and the operation of free competition.1