§ 4. The Cause of the Existence of any Profit; the Advances of Capitalists consist of Wages of Labor.

The preceding remarks have, I hope, sufficiently elucidated what is meant by the common phrase, “the ordinary rate of profit,” and the sense in which, and the limitations under which, this ordinary rate has a real existence. It now remains to consider what causes determine its amount.

The cause of profit is, that labor produces more than is required for its support; the reason why capital yields a profit is, because food, clothing, materials, and tools last longer than the time which is required to produce them; so that if a capitalist supplies a party of laborers with these things, on condition of receiving all they produce, they will, in addition to reproducing their own necessaries and instruments, have a portion of their time remaining, to work for the capitalist. We thus see that profit arises, not from the incident of exchange, but from the productive power of labor; and the general profit of the country is always what the productive power of labor makes it, whether any exchange takes place or not. I proceed, in expansion of the considerations thus briefly indicated, to exhibit more minutely the mode in which the rate of profit is determined.

I assume, throughout, the state of things which, where the laborers and capitalists are separate classes, prevails, with few exceptions, universally; namely, that the capitalist advances the whole expenses, including the entire remuneration of the laborer. That he should do so is not a matter of inherent necessity; the laborer might wait until the production is complete for all that part of his wages which exceeds mere necessaries, and even for the whole, if he has funds in hand sufficient for his temporary support. But in the latter case the laborer is to that extent really a capitalist, investing capital in the concern, by supplying a portion of the funds necessary for carrying it on; and even in the former case he may be looked upon in the same light, since, contributing his labor at less than the market price, he may be regarded as lending the difference to his employer, and receiving it back with interest (on whatever principle computed) from the proceeds of the enterprise.

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The capitalist, then, may be assumed to make all the advances and receive all the produce. His profit consists of the excess of the produce above the advances; his rate of profit is the ratio which that excess bears to the amount advanced.

For example, if A advances 8,000 bushels of corn to laborers in return for 10,000 yards of cloth (and if one bushel of corn sells for the same sum as one yard of cloth), his profit consists of 2,000 yards of cloth. The ratio of the excess, 2,000, to 8,000, the outlay, or 25 per cent, is the rate of profit. It is not the ratio of 2,000 to 10,000.

But what do the advances consist of? It is, for the present, necessary to suppose that the capitalist does not pay any rent; has not to purchase the use of any appropriated natural agent. The nature of rent, however, we have not yet taken into consideration; and it will hereafter appear that no practical error, on the question we are now examining, is produced by disregarding it.

If, then, leaving rent out of the question, we inquire in what it is that the advances of the capitalist, for purposes of production, consist, we shall find that they consist of wages of labor.

A large portion of the expenditure of every capitalist consists in the direct payment of wages. What does not consist of this is composed of materials and implements, including buildings. But materials and implements are produced by labor; and as our supposed capitalist is not meant to represent a single employment, but to be a type of the productive industry of the whole country, we may suppose that he makes his own tools and raises his own materials. He does this by means of previous advances, which, again, consist wholly of wages. If we suppose him to buy the materials and tools instead of producing them, the case is not altered: he then repays to a previous producer the wages which that previous producer has paid. It is true he repays it to him with a profit; and, if he had produced the things himself, he himself must have had that profit on this part of his outlay [pg 226] as well as on every other part. The fact, however, remains, that in the whole process of production, beginning with the materials and tools and ending with the finished product, all the advances have consisted of nothing but wages, except that certain of the capitalists concerned have, for the sake of general convenience, had their share of profit paid to them before the operation was completed.

This idea may be more clear, perhaps, if we imagine a large corporation, not only making woolen cloth, but owning sheep-ranches, where the raw materials are produced; the shops where all machinery is made; and who even produce on their own property all the food, clothing, shelter, and consumption of the laborers employed by them. A line of division may be passed through the returns in all these branches of the industry, separating what is wages from what is profit. Then it can be easily imagined that all the returns on one side, representing profits, go to capitalists, no matter whether they are thousands in number, or only one capitalist typifying the rest, or a single corporation acting for many small capitalists.