The People's Marx, Abridged Popular Edition of the the Three Volumes of Capital, Borchardt 1921

Chapter 22


Interest and the Profit derived from Industrial Undertakings.

(Extracted from vol. III. part 1. Ch. 21, 22. 23. German ed.)

Money here taken as the independent expression of a sum of value, whether the latter exist, in fact, in the form of money, or in that of commodities can, on the basis of capitalist production, be employed as capital, and is hereby transformed from a given value into an increasing one. It enables the capitalist to get out of the labourers a definite quantity of unpaid labour, which the capitalist appropriates. In this way it obtains a new use-value, i. e. the use-value of making profit. In this capacity it becomes a commodity, but a commodity of a special kind.

A man who has £ 5 (100 shillings) at his disposal, is able assuming the yearly average rate of profit to be 20 per cent to make £ 6 (120 shillings) out of the original sum. If this man hands over the £ 5 to another man for a year, and the other man really employs them as capital, the former gives the latter the means of producing £ 1 profit. If the latter man pays, at the end of the year, say 5 shillings to the owner of the £ 5 - i. e. a part of the profit yielded by this sum - he thereby pays the use-value of the £ 5, the use-value of their function as capital. That part of the profit paid by him is called interest, which is thus but a special name for designing a part of the profit.

It is clear that the property of the £ 5 gives their owner the power to appropriate a part of the profit produced by his capital, i. e. the interest. If he did not give the other man the £ 5, the latter could not make the profit.

What does the money capitalist give the borrower, i. e. the industrial capitalist? What does he, in fact, sell him?

What is sold in an ordinary sale? Not the value of the commodity sold, seeing that the latter merely changes its form, and remains in another form in the hands of the seller. What is really sold by the seller, and is consequently transferred to the consumption of the buyer, is the use-value of the commodity.

What is, now, the use-value which the money capitalist sells for the time of the loan, and which he abandons to the ' borrower? It is precisely the capacity of producing a surplus-value, besides which the original value remains intact. In the case of all other commodities, the- use-value is in the long run consumed; and thus the substance of the commodity disappears, and, with its substance, its value. The commodity we call capital, on the other hand, has a specific peculiarity: through the utilisation of its use-value, its value and use-value are not only maintained but increased.

What, now, does the industrial capitalist pay, and what is, therefore, the price of the capital lent? A part of the profit which can be produced with it.

How much of the profit must be paid as interest, and how much remains as actual profit - in other words: the so-called price of the capital lent - will be regulated by demand and supply, i. e. by competition, just like the market prices of commodities. But already here the difference is manifest. If demand and supply correspond to each othr, the market price is, in the case of ordinary commodities, equal to the price of production (cost price + average profit). That is to say, their price then appears to be regulated by the inner laws of capitalist production, independently of competition. For the fluctuations of supply and demand explain nothing but the deviations of the market prices from the prices of production. And these deviations balance each other mutually, so that within certain long periods of time, the average market prices are equal to the prices of production. It is the same with wages. If demand for, and supply of, labour power correspond to each other, their effect is annulled, and wages are equal to the value of labour power.

It is different, however, in the case of the interest on money capital. Here competition does not determine the deviations from the general rule, but, on the contrary, no general rule for division exists except the one dictated by competition; because as we shall shortly see, no?"natural" rate of interest exists. There is no such thing as tural limits of the rate of interest.

Seeing that interest is merely a part of the profit, that part which, on our assumption, must be paid by the industrial capitalist to the money capitalist, the maximal limit of the rate of interest appears as constituted by the profit itself, in which the part due to the functioning capitalist would be equal to zero. If we make abstraction of individual cases, in which interest can, in fact, be higher than the profit, but cannot, in consequence, be paid out of the latter - we could perhaps consider as maximal limit of interest the entire profit minus that part of it to be developed later, and which is dissolvable in wages of superintendence. The minimal limit of the interest is entirely indeterminable. ' It can sink to any level. But opposing forces always then enter into play, and raise it.

The average rate of interest prevailing in a country cannot be determined by means of any law. There is' no such thing as a natural rate of interest in the sense in which the economists speak of a natural rate of profit and a natural rate of wages. The correspondence of demand and supply the average rate of profit being assumed a& given - here means absolutely nothing. There is absolutely no reason why the equilibrium between lender and borrower should result in a rate of interest of 3, 4 or cent etc.

If we ask why the limits of the mean rate of interest are not to be traced to a general law, the answer is that this is due simply to the nature of interest. The latter is but a part of the average profit. How the two persons having a claim to such profit share it, is in itself purely accidental, just like the distribution of percentages of the common profit of a business company to the various co- proprietors.

Despite this, the rale of interest appears much more As a uniform, definite and palpable magnitude, than is the case with the general rate of profit.

So far as the rate of interest is determined by the of profit, it is invariably determined by the general rate of profit; not by the special rates of profit of particular branches of industry, and still less by the possible extra profit of individual capitalists.

True, it is exact that the rate of interest itself differs constantly according to the securities furnished by the borrowers, and according to the duration of the loan; but for each of these categories it is, at a given moment, uniform.

The mean rate of interest appears in every country, during a long period of time, as a constant magnitude, because the general rate of profit - despite the continual changes in the special rates of profit, which changes, however, balance each other - only varies in long periods of time.

As far as the constantly fluctuating market rale of interest is concerned, however, it must at every moment be regarded as a given magnitude, seeing that on the money market, all loanable capital is, in its totality, perpetually facing the active capital; thus the relation between the offer of loanable capital, on the one hand, and the demand for it, on the other, decides each time the market level of interest. This is a forteriori the case, the more the system of credit, owing to its development and consequent concentration, seizes hold of the loanable capital and throws it all at once, simultaneously, on to the money market. On the other hand, the general rate of profit exists always as a mere tendency, as a mutual balancing movement of the special rates of profit. The competition between the capitalists consists here in gradually withdrawing capital from those branches in which profit has for a long time remained below the average, and, inversely, in gradually supplying it to those branches in which profit is above that level; or else in gradually distributing, in varying proportions, supplementary ca pi tab among such branches. We have here a constant fluctuation of the supply and withdrawal of capital; not simultaneous operations in bulk, as is the case with the determination of the rate of interest.

The average profit does not appear as a fact which is directly given, but as the final result of the equilibrium of antagonistic fluctuations, which can only be discovered after minute investigation. It is otherwise with the rate of interest. The latter is - at least viewed locally - generally valid, generally fixed, generally known; and both the industrial and the commercial capital include it as an item in their calculations. The level of barometer and thermometer are not more exactly registered by meteorological reports, than is the rate of interest by the Stock Exchange reports and not the rate for this or that individual capital, but for the total capital on the money market, i. e. for all loanable capital.

On the money market, lender and borrower are placed alone in front of one another. The commodity has but one single form, i. e. money. All the varying forms of capital, according to its investment in particular branches of production and circulation, disappear here. Here, capital exists in the homogeneous form of an independent value, i. e. of money. Here, the competition between particular branches ceases; all such branches are, in regard to capital, merged in the one branch of money borrowers; and capital itself is still indifferent to the particular manner in which it shall be employed. It is here in reality the common capital of a class, appearing in one single phenomenon of supply and demand.

It must be added that, along with the development of modern industry, money-capital - in so far as it appears on the market - is represented in an ever decreasing degree by the individual capitalist, the owner of this or that fraction of the capital available on the market; and that it appears, in an ever increasing measure, as a concentrated, organised mass, which is placed under the control of the bankers, as the representatives of the social capital, to a far greater extent than is the case with production. The consequence is that, as regards the form of the demand, the massive weight of a class confronts the loanable capital; and, as regards the supply, capital itself appears en masse as loan capital.

These are some of the reasons why the general rate of profit appears vague and hazy by comparison with the definite rate of interest; which, it is true, fluctuates in its amount; but, since it fluctuates equally for all borrowers, ii appears always to the latter as a fixed magnitude.

How does it come about that the purely quantitative division of profit into net profit and interest is transformed into a qualitative one? In other words, how does it come about that the capitalist also, who only employs his 'own, and not borrowed, capital, specially calculates a part of his gross profit as interest? And further, that all capital, whether borrowed or not, as bearing interest, be distinguished from itself as yielding net profit? (Every quantitative division of profit is not turned into a qualitative differentiation; for instance, this is not the case with the division of profits between partners in a joint concern).

For the productive capitalist, who works with borrowed capital, the gross profit is divided into two parts: The interest, which he must pay the lender; and the surplus obtained over and above the interest and which constitutes his own share of the profit. Now, whatever may be the amount of the gross profit, the interest is fixed by the general rate of interest, and is anticipated (sometimes by special legal agreements) before the process of production commences and before any sort of profit is made; so that the question as to how much of the profit remains for the producing capital, depends on the amount of interest. This last part of the profit appears, therefore, to the capitalist, as being necessarily derived from the employment of capital in trade or production. Contrary to interest, the still remaining part of the profit which is due to him thus assumes the form of industrial profit (or commercial, as the case may be) or the form of undertaker's profit. [1]

We have seen that the rate of profit - consequently also the gross profit - does not depend only on the surplus-value, but also on many other circumstances: on the purchase prices of the means of production, on the employment of exceptionally productive methods, on the economy of constant capital, etc. And, apart from the price of production, it depends on specially favourable junctures of affairs, and, in each and every business transaction, on the greater or lesser cunning and activity of the capitalist, how far the latter buys or sells over or beneath the price of production.

It would thus seem as if the interest which he pays the owner of the money capital, is due to the latter in his capacity per se proprietor of capital. In contradiction here-with, the remaining part now appears as undertaker's profit, exclusively derived from the activity of the undertaker in industry or trade. From the standpoint of the capitalist, therefore, interest appears solely as the fruit yielded by capital per se, in so far as it does not ?work?; whereas the undertaker's profit appears to him as being solely the fruit derived from the functions fulfilled by him, i. e. as the fruit derived from his own personal activity, as contrasted with the inactivity of the money capitalist.

A separation is thus effected between the two parts of the gross profit, as if they derived from two essentially different sources; each of them becomes "fixed", and independent of the other; and this respective "fixity" and independence must be established for the entire capitalist class and for the totality of capital. It is indifferent whether the capital employed by the active capitalist be borrowed or not. The profit on every capital, consequently also the average profit, is split up into two qualitatively different, independent parts, namely interest and undertaker's profit, both of which are determined by special laws. The capitalist who works with his own capital, and the capitalist who works with borrowed capital, divide their gross profit into interest and undertaker's profit. Interest, which, in the case of the former, is due to himself as proprietor of capital which he lends to himself; and undertaker's profit, which is due to both in their capacity as active capitalists. The capital itself is, in respect of the different kinds of profit yielded by it, split up into ownership, i. e. capital which remains outside the process of production, and which yields interest; and capital within the process of production, which yields the undertaker's profit.

Capital which yields interest, and interest itself, a sub-division of surplus-value, exist historically long before capitalist production and the conception of capital and profit implied by the latter. For this reason, the capital which produces interest is, in the public opinion, capital par excellence. For the same reason it was long believed that interest serves to remunerate money as such. The fact that money lent produces interest, whether it be really utilised as capital or not, confirms the belief that this form of capital is a distinct and independent one.

Interest thus appears to the capitalist as surplus-value which capital yields per se, and which it would yield also even if employed unproductively. This is true, in practice, for the individual capitalist. The latter has the choice between lending his capital in return for interest, or utilising it himself as productive capital. But from a general point of view, and applied to the entire social capital, such a notion is entirely wrong - although some economists have sought to make of it the basis of all profit. It is, of course, absurd to assume that the totality of capital will be employed as loan capital, without people being there to buy and utilise the means of production. If an excessive number of capitalists wished to lend their capital on interest, the result would be an immense depreciation of the value of money capital, and a corresponding decrease of the rate of interest. Many would be at once rendered unable to live on their interest, and would thus be compelled to become once more industrial capitalists. But, we repeat, it holds good of the individual capitalist. The latter thus necessarily considers even if he works by means of his own capital - that part of his average profit which is equal to the average interest, to be the fruit of his capital as such, apart from all production. Capital bearing interest is property-capital, and as such is opposed to capital as function.

The producing (or active) capitalist bases his claim to the undertaker's profit on - and consequently derives that profit itself from - the fact that capital functions (as distinct from the ownership of capital). But, unlike the owner of the capital which bears interest, the representative of the capital in function holds no sinecure. The capitalist directs the process of production and that of circulation alike. The exploitation of productive labour costs much effort, whether the capitalist exploits it personally or entrusts the task to others. His profit as undertaker, contrary to the profit on interest, does not appear to him as the result of ownership, but of non-ownership - as the result of his activity as "labourer".

He thus imagines thai his profit as undertaker, far from constituting a contrast to wage-labour and deriving from the unpaid labour of others, is itself wages, i. e. the wages of superintendence.

Even as interest appears as that part of the surplusvalue which is engendered by capital itself, so does the undertaker's profit appear to be necessarily derived from production. The undertaker thus appears to create surplus-value, not because he works as capitalist, but because quite apart from his position as capitalist, he also performs work as such.

The idea of the undertaker's profit being wages of superintendence is further supported by the fact that a part of the profit can be isolated under the form of wages; or, rather, that a part of the wages appears as a part of the profit. This" is the case with the salary of the manager of the undertaking.

The work of superintendence and management necessarily arises everywhere many persons perform labour in common for a common purpose. Such work has a double aspect.

On the one hand, in all labour performed by many persons in common, the 'unity of the process is ensured by a commanding will and by functions which have not in view the detail labour, but the total activity of the whole undertaking; as in the case of the orchestra conductor. This is productive labour, which must be performed everywhere a number of persons work together.

On the other hand, this work of superintendence a: necessarily in all systems of production based on the antagonism between the labourer and the owner of the means of production. The greater this antagonism, and the more necessary the superintendence. Just as in despotic States, the superintendence and interference of the government in general include both the performance of the common labour indispensable in all communities; and also the special functions which arise in consequence of the antagonism hithe government and the people.

The ancient authors, who had slavery before their eyes, and who expose in theory what they saw in practice, describe the two aspects of the work of superintendence in absolutely the same way as do these economists for whom the capitalist system of production is eternal. Aristoteles pointed out that all domination, whether political or economic, imposes on those in power the labour of government; in the economic sphere, therefore, they must understand how to suitably employ labour power. Aristoteles adds that no great show can be made with work of superintendence; for which reason the master, as soon as he is rich enough, is glad to abandon the honour of carrying-out such duties to a manager or foreman.

The fact that the duties of management and superintendence are incumbent on the master in consequence of the exploitation of the labour of others, has often enough been held to justify such exploitation. And, just as often, the taking possession of the unpaid labour of others has been held to constitute a legitimate wage for such work performed by the capitalist. This argument has never been better stated than by a defender of slavery in the United States, a lawyer named O' Connor, in a speech in New- York on December 19 th, 1859, the motto of which was "Justice for the South". [2] "Gentlemen", he said amidst great applause, "Nature itself has predestined the negro to this servitude. He has the necessary strength for work; but Nature, who gave him that strength, denied him the will to work and the reasoning powers indispensable for governing. Both have been denied him. And the same Nature, which denied him the will to work, gave him a master to compel him to work and to make of him, in the climate to which he is adapted, a being useful to himself and to the master who governs him. I maintain that there is no injustice in leaving the negro in the position in which Nature has placed him, and in giving him a master to rule him. We deprive him of none of his natural rights by compelling him to work in return and thereby to furnish his master with an adequate compensation for the labour and talent expended by the master in governing him, and in thus rendering the latter useful to himself and to society."

Like the slave, the wage-labourer must have a master in order to make him work and govern him. If we assume the relation of the governing to the governed to be eternal and immutable, and as indispensable for production, it is only natural that the wage-labourer be compelled to produce, not only his own labour wage, but also the wages of superintendence, and thereby to furnish his master with an adequate compensation for the labour and talent expended by the master in governing him, and in thus rendering him useful to himself and to society. [3]

The work of superintendence and management, however, in so far as it originates in the domination of labour by capital, is even in the capitalist system not directly and inseparably connected with the productive functions that derive from the nature itself of labour performed in common. The wages of an epitropos in ancient Greece, or of a régisseur in feudal France, are quite separate from the profit; and assume the form of labour wages for skilful work, as soon as business is done on a scale which admits of the payment of such a manager. Capitalist production itself is responsible for the fact that the work of management, henceforth entirely separated from ownership of capital, is to be found on the street. A musical conductor needs not by any means be the Downer of his orchestra's instruments; nor is it a part of his functions as conductor to have anything to do with the wages of the other musicians. The cooperative factories prove that the capitalist has become superfluous as a functionary in the process of production. After each crisis, in the manufacturing districts in England, we can see a number of ex-manufacturers henceforth superintending, for cheap wages, the factories formerly their own, as the managers to the new owners, who are frequently their creditors.[4]

We can see from the public statements of accounts of the cooperative factories in England, that after deduction of the salary of the manager - which, just like the wages of the other labourers, belongs to the variable capital - the profit was larger than the average, although the cooperative factories paid, in some cases, far higher interest than the private manufacturers. In all these cases the increase of profit was due to greater economy in the employment of the means of production. What interests us most, however, is the fact, that here the average profit (= interest + undertaker's profit) is manifestly and palpably a magnitude entirely independent of any salary paid for administration. As the profit was here larger than the average profit, so also was the undertaker's .profit larger than usual.

The same fact can be witnessed in some capitalist undertakings, e. g. joint stock banks. Not only the salary of the manager, but also the interest due on deposits is here deducted from the gross profit; and yet a very large profit of undertaking frequently remains over.

The confusion of undertaker's profit with the wages of superintendence and administration, arose originally out of the external contrast between interest and the surplus part of profit. It was enhanced owing to the fact that profit was represented, not as surplus-value (i. e. unpaid labour), but as the wages of the capitalist himself for labour performed by him. Socialism, on the other hand, demanded that profit should be measured in practice according to what it claimed to be in theory, namely wages of superintendence. And this was very disagreeable, seeing that such wages of superintendence - like all other wages - were constantly sinking as a result of competition and the cheapening of education. With the development of cooperative societies among the workers, and of joint stock companies among the bourgeoisie, the last pretext for confounding undertaker's profit with wages of Administration vanished.

In the case of joint stock companies a new swindle has developed in connection with the wages of administration; alongside of, and above, the real manager, a number of administrators and directors are appointed, for whom, as a matter of fact, administration and superintendence are but pretexts for enriching themselves at the expense of the shareholders. "The increment accruing to bankers and merchants by reason of the fact that they act as directors of 8 or 9 different companies, can be seen in the following case: the private balance-sheet of Timothy Abraham Curtis, handed in to the Courts after his insolvency, showed an annual income of £ 800 to £ 900 under the heading ?directorship?. As Curtis had been a Director of the Bank of England and of the East India Company, every joint stock company was delighted to be able to obtain his services as director". [5] ? The remuneration of the directors of such companies amounts to at least a guinea for each weekly hoard meeting. The proceedings in the Court of Bankruptcy showed that these wages of superintendence are generally in inverse ratio to the real superintendence effectually exercised by such directors.

Notes

[1] The word "undertaker" is the exact translation of the German word ?Unternehmer? and of the French "entrepreneur". It was, to our knowledge, first introduced in this sense into the English vocabulary by Marshall in his Principles of Economics. The undertaker is the owner of an undertaking, who runs it at his own risk. Whether he himself possess the necessary working capital, or whether he has borrowed it from a financier (or money capitalist), is indifferent. - Translator's Note.

[2] In April 1861 the Civil War between the Northern and the Southern States broke out, caused by the question of slavery, which the Southern States wished to maintain.

[3] EDITOR'S NOTE - It is worthy of remark that the founder of the Conservative Party in Prussia, Friedrich Julius Stahl (1802 - 1861), expressed exactly the same idea in regard to the modem proletariat. If he has to rely on himself the proletarian will go to the wall; therefore has Providence in its wisdom appointed masters for him, to whom he ought, for reasons of gratitude and in his own interest, to submit completely; the master has a right to claim remuneration for his labour of government. Die gegenwärtigen Parteien in Staat und Kirche. (The present parties in State and Church. Written in 1850.) 20th lecture.

[4] ?In a case known to me, a bankrupt manufacturer became, after the crisis in 1868, wage-labourer of his own former labourers. After the bankruptcy, the factory was taken over by a cooperative association of the latter, who appointed the ex-proprietor as manager.? (Note by Friedrich Engels.)

[5] The City, or the Physiology of Business in London. 1845. p. 82.

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