§ 5. When profits vary from Employment to Employment, or are spread over unequal lengths of Time, they affect Values accordingly.

Value, however, being purely relative, can not depend upon absolute profits, no more than upon absolute wages, but upon relative profits only. High general profits can not, any more than high general wages, be a cause of high values, because high general values are an absurdity and a contradiction. In so far as profits enter into the cost of production of all things, they can not affect the value of any. It is only by entering in a greater degree into the cost of production of some things than of others, that they can have any influence on value.

Profits, however, may enter more largely into the conditions of production of one commodity than of another, even [pg 273] though there be no difference in the rate of profit between the two employments. The one commodity may be called upon to yield a profit during a longer period of time than the other. The example by which this case is usually illustrated is that of wine. Suppose a quantity of wine and a quantity of cloth, made by equal amounts of labor, and that labor paid at the same rate. The cloth does not improve by keeping; the wine does. Suppose that, to attain the desired quality, the wine requires to be kept five years. The producer or dealer will not keep it, unless at the end of five years he can sell it for as much more than the cloth as amounts to five years' profit, accumulated at compound interest. The wine and the cloth were made by the same original outlay. Here, then, is a case in which the natural values, relatively to one another, of two commodities, do not conform to their cost of production alone, but to their cost of production plus something else—unless, indeed, for the sake of generality in the expression, we include the profit which the wine-merchant foregoes during the five years, in the cost of production of the wine, looking upon it as a kind of additional outlay, over and above his other advances, for which outlay he must be indemnified at last.

Regarding cost of production as the amounts of labor and abstinence required in production, and not as Mr. Mill regards it, as the amounts of wages and profits, the above is simply a case where, in the production of wine, there is a longer duration of the abstinence than in the production of cloth. If there is a free movement of labor and capital between the two industries, they will exchange for each other in proportion to the sacrifices involved; so that the wine would exchange for more of cloth, because there was more sacrifice undergone. The same explanation also holds good in the following illustration:

All commodities made by machinery are assimilated, at least approximately, to the wine in the preceding example. In comparison with things made wholly by immediate labor, profits enter more largely into their cost of production. Suppose two commodities, A and B, each requiring a year for its production, by means of a capital which we will on [pg 274] this occasion denote by money, and suppose it to be £1,000. A is made wholly by immediate labor, the whole £1,000 being expended directly in wages. B is made by means of labor which cost £500 and a machine which cost £500, and the machine is worn out by one year's use. The two commodities will be of exactly the same value, which, if computed in money, and if profits are 20 per cent per annum, will be £1,200. But of this £1,200, in the case of A, only £200, or one sixth, is profit; while in the case of B there is not only the £200, but as much of £500 (the price of the machine) as consisted of the profits of the machine-maker; which, if we suppose the machine also to have taken a year for its production, is again one sixth. So that in the case of A only one sixth of the entire return is profit, while in B the element of profit comprises not only a sixth of the whole, but an additional sixth of a large part.

From the unequal proportion in which, in different employments, profits enter into the advances of the capitalist, and therefore into the returns required by him, two consequences follow in regard to value. (1). One is, that commodities do not exchange in the ratio simply of the quantities of labor required to produce them; not even if we allow for the unequal rates at which different kinds of labor are permanently remunerated.

(2.) A second consequence is, that every rise or fall of general profits will have an effect on values. Not, indeed, by raising or lowering them generally (which, as we have so often said, is a contradiction and an impossibility), but by altering the proportion in which the values of things are affected by the unequal lengths of time for which profit is due. When two things, though made by equal labor, are of unequal value because the one is called upon to yield profit for a greater number of years or months than the other, this difference of value will be greater when profits are greater, and less when they are less. The wine which has to yield five years' profit more than the cloth will surpass it in value much more if profits are forty per cent than if they are only twenty.

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It follows from this that even a general rise of wages, when it involves a real increase in the cost of labor, does in some degree influence values. It does not affect them in the manner vulgarly supposed, by raising them universally; but an increase in the cost of labor lowers profits, and therefore lowers in natural values the things into which profits enter in a greater proportion than the average, and raises those into which they enter in a less proportion than the average. All commodities in the production of which machinery bears a large part, especially if the machinery is very durable, are lowered in their relative value when profits fall; or, what is equivalent, other things are raised in value relatively to them. This truth is sometimes expressed in a phraseology more plausible than sound, by saying that a rise of wages raises the value of things made by labor in comparison with those made by machinery. But things made by machinery, just as much as any other things, are made by labor—namely, the labor which made the machinery itself—the only difference being that profits enter somewhat more largely into the production of things for which machinery is used, though the principal item of the outlay is still labor.