Karl Marx, Capital (Das Kapital), vol 3 (I)

CAPITAL (DAS KAPITAL) (Vol. 3)
by
Karl Marx
(Foreign Languages Publishing House translation)

Making value disappear:

Marx finally confronts his fundamental irresolvable problem in Volume 3. There are numerous processes and incentives in the capitalist system that obviously contribute greatly to its productivity yet don't involve industrial labor. For his propaganda purposes, Marx must disparage them and maintain his view that they are of no "value."
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It is impossible to rationally discuss common economic phenomena with "profits" as redefined by Marx.

Both Marx and Engels continuously trip up when applying "profits" as Marx redefines that term to phenomena that can only be explained by "profits" as normally defined.

Of course, he fails. He throws up numerous examples of capitalist abuses and confusing clouds of obscuring detail about the business cycle. This provides much grist for Marx's propaganda mill and an emotional smokescreen with which the weaknesses of Das Kapital are hidden.
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"Profits" - frequently now by name - but still frequently confounded with surplus value - finally comes front and center under consideration in Volume 3. Much of Volume 3 is concerned with the relationship of these two concepts, and with interest and rent - but not ground rent on raw land - as forms of profit.
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"Profits" are redefined in Volume 3 to show its close relationship with surplus value. However, this merely shifts the tendency to confound profits with surplus value to a tendency to confound "profits" as redefined by Marx with "profits" as normally defined. See, "The rate of profit," below.
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It is impossible to rationally discuss common economic phenomena with "profits" as redefined by Marx. His redefinition of the term reduces it to a concept with NO functional applicability in capitalist economics. His definitions and redefinitions of other terms compound this problem. Both Marx and Engels continuously trip up when applying "profits" as Marx redefines that term to phenomena that can only be explained by "profits" as normally defined.
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	Differences in the productivity of individual capitalists also begin to gain recognition in Volume 3. (Capitalist facilities are not homogeneous masses, all of which might collapse together as overproduction and overcapacity squeeze profits.) Yet, he still expects a general collapse. He mentions such differences only in passing while discussing other things. & He similarly - but just in passing - even provides recognition of the productive importance of the ownership interest - apparently oblivious that this is inconsistent with his continued denial of its value. Repeatedly, Marx perforce acknowledges that his abstract labor theory of value has no visible impact on individual capitalists or industries -- its impacts exist only as broad economic averages for an entire economy. In a desperate tail wagging the dog argument, Marx and Engels assert that this average somehow determines its constituent parts instead of being, as averages always are, a mere mathematical calculation determined by its parts. & Very conveniently, the impacts of these averages are too attenuated to be demonstrated. Unfortunately for Marx, repeated efforts at demonstrating some functional role for this and other concepts all clearly fail. &
	Engels considered Volume 3 the most important of the volumes of Das Kapital. In this, he is undoubtedly correct, although there is considerable doubt as to whether all these assorted notes always included Marx' final considered opinions. In this volume, Marx - supplemented by Engels - finally deals at length with profits in its varying forms as industrial and mercantile profits, as interest and as rent. In Volume 3, Marx finally attacks the problem of "profits" directly and aggressively. With some semantics slight-of-hand, he radically redefines the terms "profits" and "total capital," and then pretends that they describe the same phenomena as when normally defined. (Needless to say, such an effort inevitably becomes an exercise of extraordinary stupidity.) & Nevertheless, Volume 3 is the least read - perhaps because it is a daunting 890 pages in length - not counting Engels' usual 20 page Preface. Volume 4, produced well after Engels' death, is primarily an account of the history of the theory of surplus value and - mercifully - of so little import as to be readily disregarded. & Volume 3 has more of Engels in it than any other volume, although he assures us that his arrangements, supplementations and additions were all carefully in line with the notes and thoughts of Karl Marx. In particular, Marx failed to fulfill his long-standing promise to provide an explanation of financial capital that reconciled its obvious roles in capitalist productivity with the contention by Marx that it added no value to capitalist production. & For example, Part 2 of Chapter 6 of Volume 3 begins with the acknowledgement that world markets and the credit system are essential to an understanding of the capitalist system, and provides assurance that they will be covered in the "continuation" of Volume 3 after "the general nature of capital" is explained. He does, in fact, herein provide voluminous material on the monetary and financing mechanisms of capitalism and their uses. &
The financial system bestows many "benefits" on the productive and distributional systems, but no "value."	Yet again, a distinction without a difference is the ultimate propaganda ploy resorted to. The financial system bestows many "benefits" on the productive and distributional systems, but no "value." See, Karl Marx, Capital (Das Kapital) vol. 3 (II), "Interest, Rent, and Labor Use-Values," at "I) Interest and Returns on Equity Capital." He fails to explain how these financial mechanisms can be so useful - indeed, admittedly essential - and yet not contribute to the "value" created by the system. He hides this failure behind his usual emotional smokescreen by instead passionately emphasizing the abuses and periodic failures of the system. & The coverage of rents is the most logical part of Das Kapital. It is also the subject with which Marx is most in agreement with Adam Smith. Unlike Smith, however, Marx - as is expected - emphasizes the problems and costs of private ownership of land while disparaging the benefits - indeed, the essentiality - of private property.

The influence of labor use-values on profits:

There had already arisen a "Marxist School" of socialist economists churning out interpretative material by the time of publication of Volume 3 of Das Kapital in 1894. They were wandering in various directions, struggling to make sense of the concepts presented in the first two volumes, and to preserve them in the face of a reality that observably - perversely - refused to conform to Marx's "scientifically" determined economic "laws." Thus, in the beginning, in Friedrich Engels' Preface and in the body of Volume 3, Engels and Marx spend some time and ink trying by means of criticism and explanation to channel this diverse flow of rationalization into the course they believed appropriate.
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How can profits be dictated by total capital when only the use-value of industrial labor power provides the surplus value from which it is derived?

The important problem of profits is addressed by Engels in his usual 20 page preface.. As Engels had pointed out in Volume 2 - and everyone starting with Adam Smith recognized - profits depend not just on industrial capital and labor, but on the total capital employed during a given time. "Accordingly, equal sums of capital yield equal profits in equal time spans," regardless of the particular mix of industrial productive and overhead capital, circulating capital, and/or financial capital.
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Engels must conform this to the Marx propaganda myth. If "accumulated labour creates value the same as living labour," then Marx's "law of value does not apply."

How can profits be dictated by total capital when only the use-value of industrial labor power provides the surplus value from which it is derived?

"While theory teaches [the Marxist scholar] that, at a given rate of surplus-value the [surplus-value] is proportional to the labour-power employed, he learns from experience that at a given average rate of profits, profit is proportional to the total capital employed."
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"But how is surplus-value, whose magnitude hinges upon the degrees of labour exploitation, transformed into profits whose magnitude depends upon the amount of the capital employed?"

To answer this, Engels abandons the concentration in the first two volumes on the workings of individual businesses and industries. In general agreement with one Peter Fireman, Engels relies instead on averages for the economy as a whole. "Fireman has indeed placed his finger on the salient point," Engels says. Variances from the averages, according to Fireman, are just "predictable disturbances" in the workings of the economic "laws" of Marx and in no way refute them.
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Goods can thus be circulated in the market at prices substantially above their "value" - above the costs defined by Marx as "socially necessary" - and that variance can be maintained indefinitely. Other goods can be marketed at prices below their "value" - for indefinite periods - without driving producers out of business - without causing capital to flee from that industry.

Marx, too, in volume 3, has taken this route. Marx's theory of value in fact does not apply to businesses and industries, but somehow manifests itself only in average profit rates for an economy as a whole. Some industries run above average, and some below, but "the total sum of prices remains equal to the total sum of values." Moreover - horror of horrors - these averages are admittedly based on commercial capital as well as industrial capital. See, "The rate of profit," below.
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This unknown and indeterminate factor lurking in the background somehow regulates all economic activity. As Marx explains at the end of Volume 3:

"[The] entire determination of value and the regulation of the total production by value results from the - - - two characteristics of the product as a commodity, or of the commodity as capitalistically produced commodity. In this entirely specific form of value, labour prevails on the one hand solely as social labour; on the other hand, the distribution of this social labour and the mutual supplementing and interchanging of its products, the subordination under, and introduction into, the social mechanism, are left to the accidental and mutually nullifying motives of individual capitalists. Since these latter confront one another only as commodity-owners, and everyone seeks to sell his commodity as dearly as possible -- apparently even guided in the regulation of production itself solely by his own free will --, the inner law enforces itself only through their competition, their mutual pressure upon each other, whereby the deviations are mutually cancelled. Only as an inner law, vis-à-vis the individual agents, as a blind law of Nature, does the law of value exert its influence here and maintain the social equilibrium of production amidst its accidental fluctuations."

Nevertheless, as Marx elsewhere acknowledges, fluctuations between products are not "mutually cancelled." Some products remain inherently above "value" levels, and some below. (This is obviously a very weak "law of Nature," indeed.)
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Goods can thus be circulated in the market at prices substantially above their "value" - above the costs defined by Marx as "socially necessary" - and that variance can be maintained indefinitely. Other goods can be marketed at prices below their "value" - for indefinite periods - without driving producers out of business - without causing capital to flee from that industry.

Much of Marx's elaborate explanations are thus rendered "immaterial." It is mere truism that variations fluctuate about some average. Some industries are capital intensive and some are labor intensive, as Fireman points out - and they can remain that way for indefinite periods. Some industries are subject to intense competition, and others are not.
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As mere broad averages, the economic "laws" discovered "scientifically" by Marx are thus revealed to be essentially meaningless. They are the result and not the cause of outcomes.

All forms of capital - including commercial forms - now suddenly play a role in determining profits and market prices and even values based on "socially necessary" activities, since the averaging out in the marketplace acknowledged by Marx and Engels is done on the basis of commercial as well as industrial capital - overhead as well as factory capital. Thus, profits are transformed into portions of surplus value that are distributed according to the total capital of specific entities regardless of the surplus value each entity produced.

When dealing with "profits" and "capital" as normally defined, relationships - although still not precise - apply observably to particular economic elements, not just to vague national averages. By reducing the influence of their concept of "value" to averages that have no influence, Marx and Engels escape from reality only to wind up in a morass of contradictions.

Marx radically redefines the terms "profits" and "total capital," and then pretends that they describe the same phenomena as when normally defined.

This is clearly inconsistent with the view of Marx, asserted as early as Volume 1, that, although lurking behind the scenes, his "values" regulate fluctuations in the market. Yet, Marx, too, in Volume 3 retreats to the assertion that it is only at the national level that "the mass of profit is identical with the mass of the surplus-value, and with the surplus value itself." Marx ultimately retreats even from this proposition. Towards the end of Volume 3, Marx excludes "ground-rents" on raw land from "profits" but not from surplus value.
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Once again, Marx feels impelled to assert the practical economic importance of this additional segmentation that he here elaborates. He emphasizes that "cost-price" is not just a bookkeeping convention. It constitutes an essential part of capitalist production, since it covers the maintenance of productive capital.
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Then, Marx provides an example that shows the importance of his new segmentation - it "leaps to the eye."
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He asserts that a rise or fall in the cost of materials will automatically increase or decrease equally the value of commodities, but not similar changes in the cost of labor. The "value" of commodities stays the same in the latter case because there has been no change in labor power expended, even though the wages paid for that labor have changed.
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Here is another instance where Marx's reasoning depends on the assumption that ordinary labor is never entitled to more than subsistence wages. Engels specifically states this view in his Preface. Thus, not only is any decrease below subsistence levels not sustainable but also any increase above subsistence levels is also not sustainable.
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However, in a short supplementary chapter, Marx somewhat inconsistently recognizes and summarizes the impacts of general changes in wage rates. In the very next chapter, however, he reaffirms his view that wage rates are tied to subsistence levels and that all variations up or down are mere unsustainable "oscillations."

Unstated in this example is the assumption that the changes in commodity costs change for all producers - but the changes in labor costs change just for the one producer. In the real capitalist world, it can just as easily be the other way around.
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An industry-wide change in labor costs affects the price "socially necessary" to bring goods to market, and thus their "value." A single producer can experience higher or lower commodity costs for a variety of reasons - such as local transportation or other local supply bottlenecks, the efficiency of inventory management or the effectiveness of efforts to hedge price changes in the commodities markets. These would not more than minutely affect the price "socially necessary" to bring goods to market, and thus would not affect their "value."
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Of course, market price is not "value" as Marx defines it. It is important when reading such passages not to confound "price" with Marx's concept of "value." Marx's concept of "value" is never manifest - it is always indeterminable. Thus, this is certainly not an example that "leaps to the eye."
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And then there is the problem of the additional profits. Where do they come from?
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An increase in the costs of industrial materials increases the capital needed for production, and thus increases the profits demanded by capital - as Adam Smith clearly explained more than a century before with respect to taxes. See, segment on "Taxation" in Smith, "The Wealth of Nations," Part II. Since profits must rise in proportion to increases in capital "advanced," where can they come from if labor remains the same and - by definition - provides no increase in "surplus value?"

To the capitalist, these distinctions are invisible, Marx must here again admit - as with all his other special distinctions. The capitalist sees only his "cost-price" and the value of the commodities produced. The distinction between Marx's variable capital and constant capital is invisible. The capitalist sees only the distinction between fixed and circulating capital.
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Since the "cost-price" includes all the capital transferred to the commodities being produced, the surplus value - the excess value over "cost-price" - "is an accretion in the value of the capital expended in the production of the commodity and returning by way of its circulation."

Here, again, the basic inconsistency of Marx appears. He resorts yet once again to one of his favorite propaganda ploys - a distinction without a difference. The "value" of the commodities can only be realized by their movement through "circulation" to realize their ultimate use-value to consumers - but the costs of "circulation" are not legitimate "costs of goods sold" to those consumers. All of the commerce and much of the overhead factors in the capitalist "cost of goods sold" have no legitimacy to Marx. They add no "value," no matter how much "benefit" they bestow - no matter how essential they may be to efficiently deliver commodity use-value to consumers.

The capitalist sees only that his total capital has produced an increase - a profit, as that term is normally defined. He does not see that only his expenditures for industrial wages have produced the increase.

"As for the capital consumed in production, the surplus-value seems to spring equally from all its different elements of value consisting of means of production and labour. For all these elements contribute equally to the formation of the cost-price. All of them add their values, obtaining as advanced capital, to the value of the product, and are not differentiated as constant and variable magnitudes of value."
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"The outcome is that surplus-value springs simultaneously from all portions of the invested capital."

Again, Marx confounds "surplus value" with "profits" as that term is normally used. The capitalist's "total capital" - again as that term is normally used - also includes sums expended for all his overhead, ground rent, purchasing and marketing, and taxes. But "profits" and "total capital" are defined very differently by Marx. See, "The rate of profit," below. In his usual style, he here confounds the terms as normally used with the terms as he defines them.

Marx cites Malthus: "The capitalist - - - expects an equal profit upon all the parts of the capital which he advances." Yet again, Marx confounds "surplus-value" with "profit" as normally defined. He produces his mathematical formula again with p substituted for s as if the two were synonymous. They may be for Marx - but not for Malthus.
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Here Marx finally indicates that he applies a radically new definition for the term "profits." He explicitly states that, when commodities are sold at their "value," profits - as he defines that term - will equal surplus value.

"Hence, if a commodity is sold at its value, a profit is realised which is equal to the excess of its value over its cost-price, and therefore equal to the entire surplus-value incorporated in the value of the commodity."

Marx has completely eliminated from consideration all those other elements of the costs of goods sold that subtract from profits as normally defined but not from his "surplus value." To Marx, those factors just share in the industrialist's profits. An industrial capitalist could go bankrupt while earning substantial profits as Marx defines that term.

Sales below "cost-price" will cause a reduction of productive capital. Thus, "the capitalist is inclined to regard cost-price as the true inner value of the commodities, because it is the price required for the bare conservation of his capital." This is the price required to prevent the disappearance of his "advanced capital."

Here, Marx confounds his narrow "cost-price" for the broader "cost of goods sold." The latter includes at least all necessary expenditures - including taxes, rents and purchasing and marketing and all items of overhead in between. No capitalist fixates on just the factors of "cost-price" - the cost of industrial labor, materials and assets. This segmentation, too, is thus "immaterial" to any explanation of capitalist production.
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There is no need to go into the various explanations involving labor use-values offered by the Marxist School economists referred to by Marx herein. They are indeed invalid - but certainly not for the reasons set forth by Marx.

The rate of profit:

Marx now appropriates established economic terms and phrases - "profits" and "total capital" - and redefines them - leaving bourgeois economists with not even a language with which to express their views. It is not enough for him to just introduce his new terms and phrases as necessary to accurately explain his concepts.
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Nevertheless, the illogic of his efforts remains quite clear. For Marx, too, it proves impossible to logically express his views with these terms as he redefines them.

Like surplus value, profits are limited only by expenses for industrial wages and industrial assets and materials - which are already "pregnant" with surplus value.

"Total capital" is redefined by Marx as his combined "constant" and "variable" capital - limited to industrial productive assets and materials and wages. Immediately inconsistent, however, is the acknowledgement below that the "total capital" of merchant activities must also be included.
"Profits" are now expressly redefined by Marx as being the equivalent of "surplus value" when commodities are sold at their "value." Like surplus value, profits are limited only by expenses for industrial wages and industrial assets and materials - which are already "pregnant" with surplus value.

When discussing Marxist concepts, one must always start with first principles. One most be careful to get the semantics right. Otherwise, it is impossible to know what is being asserted.
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Marx fluctuates inconsistently between "profits" as herein defined and "profits" as normally defined. As pointed out in Volume 1 (Part I), his definitions of "capital" are variously inconsistent.
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As with Tweedle Dee and Tweedle Dum, his words mean exactly what he intends them to mean - nothing more and nothing less. This is hardly a proper way to conduct "scientific investigations."

But, why then is this concept of "profits" needed, if it is so analogous to "surplus value?"

It is justified as an element in the "rate of profit" - a rate that, unlike the "rate of surplus value," is calculated against the "total capital." This, of course, is much narrower than the total capital against which bourgeois economists calculate profit rates. With a smaller denominator, not only are "profits" made to look much larger when thus calculated, this calculation thus naturally leaves a much larger "rate of profits."
It is also justified because, as Marx later points out, commodities are seldom sold at their "value." See "Immaterial," below. They are generally sold more or less either above or below industrial labor use-values, so that "profits" and "surplus value" do, still, generally vary.

"The rate of surplus-value measured against the variable capital is called the rate of surplus-value. The rate of surplus value measured against the total capital is called the rate of profit. These are two different measurements of the same entity, and owing to the difference of the two standards of measurement they express different proportions or relations of this entity."

This redefinition of "profits" may serve Marx's propaganda needs, but causes him all kinds of confusion.
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"Profits" as Marx defines that term are indeterminate, nonfunctional, and divorced from otherwise observable relationships with capital and interest rates. He never expressly explains whether overhead elements are included in "total capital" and if not, why not? If so, how can profits ever equal surplus value?
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This new definition of "profits" fails to conform to the universal observation that profit rates tend to equalize across all capital advanced.
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The extent to which capital qualifies as "total capital" as defined by Marx varies for various industries. Thus, his concept of "profits" doesn't conform to observable fact. He doesn't explain how profit rates equalize but substantial variances remain in his "rate of profits."

"Total capital" includes capital advanced for merchant activities.

Merchant's capital also earns on average the equalized rate of profit. When he gets to his segment dealing with commercial factors, he perforce inconsistently has to expand his view of "total capital" so that it can be applied in the context of merchants and other commercial factors. This automatically expands "total capital" to take in the industrialist's purchasing and marketing offices.

"Whether industrially invested in the sphere of production, or commercially in the sphere of circulation, capital yields the same average annual profit pro rata to its magnitude."

However, this expansion still leaves out a variety of overhead expenses - bookkeeping, clerical, legal, taxes, rent - without which the "law" observably doesn't apply.

In surplus value, the relation between capital and the exploitation of labor "is laid bare."

But if profit and surplus value averages are quantitatively so similar, why has Marx gone to so much trouble in defining and explaining surplus value? Because profits appear to come from total capital, while in surplus value, the relation between capital and the exploitation of labor "is laid bare."

This is the propaganda purpose that is behind this 1800 page effort in making reality disappear.

Marx then summarizes again his recognition that the realization of these rates for individual capitalists or industries are dependent on the vicissitudes of the market. Commodities can be sold at above or below their values. This merely alters the division of surplus value, not its quantity or rate. The processes of circulation and marketing complicate the picture but merely determine how values are divided. These complications permit the erroneous bourgeois view that surplus values can be derived from all capital expenditures - even independently without any industrial labor - rather than just industrial wages. However, he cannot abandon his view, elaborated in Volume 1, that the "values" he has defined act as a hidden force regulating all these price movements over time.

"The relationships of capital are obscured by the fact that all parts of capital appear equally as the source of excess value/profit." (They certainly do!)

Marx and Engels then provide 27 pages of pseudo scientific mathematical reasoning covering a wide variety of permutations of these "rates of profits" and "rates of surplus value." At best, the economics described by these calculations is grossly simplistic. However, since these "rates" are totally immaterial, the mathematics are equally immaterial. As they perforce frequently admit, all of these calculations are invisible to capitalists and thus are of no consideration in how capitalists conduct their business.

Nor, despite frequent efforts and assertions to the contrary, do Marx and Engels ever demonstrate that these "rates" have the slightest hidden influence on the reality of economic activity.

Competition forces producers to pass the lions share of all cost decreases on to their customers.

Then, Marx analyzes how the "rate of profit" increases with improvements in various aspects of production - with "economy of constant capital" - such as a shortening of the rate of turnover or the recycling of scrap materials or an increase in the scale of production or productivity of machinery - the quantity and rate of "surplus value" remaining equal. He follows this with changes in industrial material and equipment valuations. He assumes herein that "commodities are sold at their values, so that price fluctuations caused by competition do not as yet concern us."

"If the surplus-value is given, the rate of profit can be increased only by reducing the value of the constant capital required for commodity-production. So far as constant capital enters into the production of commodities, it is not its exchange-value, but its use-value alone, which matters. The quantity of labour which flax can absorb in a spinnery does not depend on its value, but on its quantity, assuming the productivity of labour - - - to be given."

This is breathtaking ignorance. Marx not only reasonably eliminates competitive price fluctuations to simplify his analysis at this point, he also eliminates competition. He attempts to draw broad conclusions from examples based on monopoly conditions. Reductions in such costs are available to all producers, and thus can increase profit rates only temporarily and mainly for first movers. The markets force producers to pass such savings on to consumers - as Marx elsewhere extensively emphasizes.

The tendency of profit rates to decline over time with improvements in capitalist production have been evident since the time of Adam Smith, and Marx extensively analyzes it. Indeed, Marx at several points notes the competitive squeeze experienced by industrialists when some particular productive advance is under rapid development, rendering existing equipment prematurely less valuable. Competition forces producers to pass the lions share of all cost decreases on to their customers.
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Irrationally drawing a broad conclusion from his narrow, monopoly example, Marx asserts that it is this ability to increase profits by reductions in the costs of raw materials that drives capitalists to favor cost reductions and elimination of tariffs. He criticizes Ricardo for discussing the advantages of world trade on the basis of "general principles" without recognition of its influence "on the rate of profit."

Of course, this "rate of profit" is totally artificial, with no economic applicability. Even with respect to monopoly conduct, this analysis fails to conform to observable reality. It is necessity - fear of commercial death - from competition - that drives productivity gains. Monopolies and government owned enterprises are notoriously inefficient and slow to adopt cost-reducing techniques.

Competition overwhelms all efforts at stabilization.

With competition, surplus value itself is affected when costs are reduced due to more efficient use of materials and equipment. That is why employers so fanatically insist on the most efficient and least costly methods of production. Indeed, competition is so powerful that it constantly forces the capitalist to cut costs and improve the efficiency of production - to the point of cheating on quality and failing to provide safe working conditions.

"Such economy extends to overcrowding close and unsanitary premises with labourers, or, as capitalists put it, to space saving; to crowding dangerous machinery into close quarters without using safety devices; to neglecting safety rules in production processes pernicious to health, or, as in mining, bound up with danger, etc."

Marx then, again, provides detail from the abundant examples of horribles available in 19th century industrial history - here, 15 pages in addition to that already provided in previous volumes of Das Kapital. He attributes these conditions solely to the capitalist mode of production.

This contention would be proven wrong numerous times in communist and socialist states during the 20th century. Working conditions in the Soviet Union and several other socialist workers’ paradises would plumb to depths seldom experienced even in slave states. Slaves, after all, have economic value that workers in communist systems do not.

In similar mode, Marx continues for about 25 pages explaining simplistically how various price and productivity fluctuations impact the rates of profits and surplus value. He repeatedly runs these through his mathematical models. He concludes that capitalist industrial development, by constantly increasing the demand for raw materials - especially those of an agricultural nature - must constantly increase the volatility of price fluctuations as periods of surplus follow periods of scarcity and back again in response to rapidly fluctuating prices.
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Competition overwhelms all efforts at stabilization, Marx acknowledges. Agricultural commodities like cotton, flax, jute, hemp and wool are especially hard hit by these violent fluctuations in prices, demand and supplies. Marx provides 16 pages of data reproduced from various English Factory Reports and other sources on the impacts - especially on labor - of these frequent adverse fluctuations.

It's hard to criticize Marx for such simplistic explanations of business cycle movements, since modern economists frequently offer nothing better.
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But there is an apparent inconsistency, here. If competition so ruthlessly forces capitalists to cut prices - to pass cost reductions on to consumers - how do reductions in costs increase profits? If reductions in costs reduce the amount of capital needed for production, and profits are determined by the amount of capital used, how do they more than temporarily increase profits?

Clearly, it is only by the provision of more goods to consumers at these lower costs - by the provision of more benefits for consumers - that profits can increase as a result of cost decreases. For Marx, this is expressed as the squeezing of more surplus labor out of workers by working them harder or putting more of them to work to serve the new and increased markets. In this way, capitalism increases the “amount” of profits, which, unlike the “rate of profits,” is “identical” to the “amount” of surplus value. Providing employment is inherently exploitative.
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At least, here, Marx discusses supply and demand and uses those terms with their normal meaning. Engels notes that this section was written back in the 1860s, and does not reflect conditions as developed in the 1890s, when great trusts were forming and pressure for increased protective tariffs was increasing.
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Marx here includes a 4 page supplement wherein he finally - in less than a page - recognizes that producers are not all fungible. After more than 1,000 pages of material, Marx finally - however briefly - acknowledges that managerial and entrepreneurial skills can differentiate producers and impact profitability. Later, he notes how this comes into play during crises when the weakest capitalists are driven under, permitting resumption of profitable operation for the survivors.
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"Under capitalist production, the general law [of industrial labor use-value] acts as the prevailing tendency only in a very complicated and approximate manner, as a never ascertainable average of ceaseless fluctuations."

Marx's phenomena apply only to capitalists as a class.

"Thus, although in selling their commodities the capitalists of the various spheres of production recover the value of the capital consumed in the production, they do not secure the surplus value, and consequently the profit, created in their own sphere by the production of these commodities. What they secure is only distributed, to the share of every aliquot part of the total social capital from the total social surplus-value, or profit, produced in a given time by the social capital in all spheres of production. - - - So far as profits are concerned, the various capitalists are just so many stockholders in a stock company in which the shares of profit are uniformly divided per 100, so that profits differ in the case of the individual capitalists only in accordance with the amount of capital invested by each in the aggregate enterprise., - - -. Therefore, the portion of the price of commodities which replaces the elements of capital consumed in the production of these commodities, the portion, therefore, which will have to be used to buy back these consumed capital-values, i.e., their cost-price, depends entirely on the outlay of capital within the respective spheres of production. But the other element of the price of commodities, the profit added to this cost-price, does not depend on the amount of profit produced in a given sphere of production by a given capital in a given period of time. It depends on the mass of profit which falls as an average for any given period to each individual capital as an aliquot part of the total social capital invested in social production."

Here we have the heart of Marx's attempt to reconcile his propaganda myth with reality. Here we have his explanation as to why "values" incorporated into commodities by industrial labor are observably not sufficient to explain capitalist market phenomena. "Values" are generated by individual industries, but prices somehow reflect these values only on average across industries.

Note how this argument falls apart if we confine it to the definitions and redefinitions produced by Marx - for "value," "profits," "cost-price," and "the elements of capital consumed in production."

Note how this argument confounds "cost price" with "cost of goods sold" as the measure of "the portion of the price of commodities which replaces the elements of capital consumed" which must be realized to "buy back these consumed capital values" before we get to the "profits" that are observably equalized according to "the outlay of capital" expended.

Note how this argument confounds the outlay of industrial capital with the total outlay of capital for all factors required to bring goods to market.

Note that the "sharing" of "profits" according to the "aliquot part of social capital" invested is nonsense when applied to Marx' definitions.

"Under capitalist production, the general law [of industrial labor use-value] acts as the prevailing tendency only in a very complicated and approximate manner, as a never ascertainable average of ceaseless fluctuations."

Indeed! How convenient. Thus, this is one "scientific fact" that can never be measured and scientifically proven or disproved. This is - perhaps - a basis for an unproven and very tentative hypothesis. However, it is hardly a basis for scientific certitude.

The "rate of profit," as Marx defines it, varies.

"[The] rate of profit is from the very outset distinct from the rate of surplus-value - - - since the rate of profit can rise or fall while the rate of surplus-value remains the same, and vice versa, and since the capitalist is in practice solely interested in the rate of profit."

However, here, too, there is a "general rate of profit" for the economy as a whole that changes only slowly, Marx notes, because more rapid particular changes tend to balance each other out.
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The mass of surplus value is of importance to the capitalist class as a whole amongst whom it is divided. It is of importance to the individual capitalist "only in so far as the quantity of surplus-value produced in his branch helps to regulate the average profit."

"But this is a process which occurs behind his back, one he does not see, nor understand, and which indeed does not interest him." (Indeed!)

But, of course, this "rate of profit" is inconsequential - to the capitalist and to everyone else. No one reacts to it - nothing is determined by it - like so much else in the Marx propaganda myth, it is immaterial. That's why capitalists seem so unconcerned. That's why they stay in lines of business that have below average "rates of profit" as that term is defined by Marx.

The realities of surplus value hidden under the surface are for the first time revealed by Marx in Das Kapital..

"[This] confusion of the theorists best illustrates the utter incapacity of the practical capitalist, blinded by competition as he is, and incapable of penetrating its phenomena, to recognise the inner essence and inner structure of this process behind its outer appearance."

Marx provides about 60 pages discussing the various permutations of these disconnects between prices and values, averaged profits and varying rates of profits. (But, it is all "immaterial.") He continues to confound "profit" as he defines it with profit as normally defined - citing again Malthus that "every part of a capital yields a uniform profit." He provides a discussion of profits averaged "under pressure of competition" on the basis of the "masses of capital" employed in each sphere of production - again confounding his narrow definition of capital - industrial assets plus wages - for a phenomenon that is based on the much broader normal definition of capital.
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He discusses market pricing from the perspective of the supplier of commodities. He insists that demand cannot be understood except on the basis of how wages and surplus values are divided among the different classes of consumers, but at least he recognizes that demand levels play a role. He even discusses market alternatives when demand "shrinks" or "increases" - is "weaker" or "stronger" - relative to supply. The market price is never at rest. For any appreciable period, it is always comprised of prices fluctuating about an average.
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Marx also reasonably recognizes exceptions for periods when supply is abnormally high or low. He again briefly recognizes that producers are not fungible - that they vary in their costs and productivity.

"Supply and demand determine the market-price, and so does the market-price, and the market-value in the further analysis, determine supply and demand."

Marx thus tries to apply standard economic market theory to his specialized concepts and redefinitions of existing concepts. For those who do not understand the semantics games he is playing, it all sounds as reasonable as does standard economic theory.
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Pressures in the competitive markets tend generally to force prices to equal "values" and so profits become generally equated with surplus value. As long as he is dealing with averages, everything balances - since that is the nature of averages for factors with definitions as similar as those provided by Marx for "surplus-value" and "profits."

The problem is that there is in reality no one "value" for any given product. Returns on capital can equalize throughout a nation. Capital knows not distance. There is only one market for capital, and it will always tend to demand its market return throughout the nation. But an industrial product can have many different markets with substantially different prices.
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"Value" in the market place is observably different than "value" on the producer's loading dock. "Value" in a market that is nearby to the producer is observably less than "value" in a distant market. Marx has no explanation for this.
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He assumes that all value - even value at the most distant market - was provided by industrial capital, and that the factors of commerce at most just prevent loss from that value. Why should the merchants serving nearby markets always be so much less successful in preventing loss of value than those who service distant markets? And, why should this efficiency reverse when distributing goods produced near the distant market?
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Marx tries to hide this irrationality by recognizing that "price" doesn't necessarily equal "value." This enables him to concentrate on averages. However, that's like averaging apples and oranges. The tasks of producing goods for markets at substantially different distances are inherently different and can't be averaged.

Prices and price movements are "dominated" by "the law of value," Marx asserts. Value "is the center of gravity" around which prices tend to fluctuate. "[The] law of value regulates the prices of production."

"What competition, first in a single sphere [of production], achieves is a single market-value and market-price derived from the various individual values of commodities."

But there is no single center of value/gravity for goods. Instead, like moons in the solar system, markets with differing costs of distribution have observably different "values" around which prices fluctuate. &
Marx is like a 17th century Catholic theologian who cannot explain the moons circulating about Jupiter and Saturn. True, everything circles the earth across the night sky, but there is no explanation for observed systematic anomalies as the moons also circle their planets. No matter how sophisticated and extensive Marx's rationalizations may be, reality perversely refuses to conform to them. Marx cannot make distribution disappear as an economic factor.

Market price is not in fact determined by supply and demand, Marx asserts, but independently of them, because factors outside the market - factors of industrial production - observably move market prices. If the factors increase or decrease permanently, the change in market prices is correspondingly permanent.

But supply and demand is always viewed as bundles of factors, rather than as singular forces. Nobody disputes that the factors of industrial production play an important role in the supply side of the equation. The dispute is with Marx's exclusion of other factors observably involved on both sides of the supply and demand equation. He typically explains clapping by the movement of one hand - and a severely amputated hand at that.

Indeed, beginning in the very next paragraph, Marx extensively explains that competition and "the fluctuations of market-prices which correspond to the fluctuations of demand and supply, tend continuously" to equate prices with values. Further, here again, Marx notes that those in the market are concerned only with market prices. Buyers and sellers know nothing of "values" as defined by Marx. He recognizes a wide array of factors at play in the demand side of the equation.
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Marx emphasizes that industrial labor use-values remain a hidden regulator of those activities, but many of the supply factors that divide the "total revenue of a society" somehow do so without bringing value to market.
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Yet, again, Marx confounds his concepts of "profit" and "rate of profit" with the normal meanings of those terms, in explaining once again why capital flows satisfy the natural demand of capital to receive the "average profit."

Capital in developed nations knows not distance, and knows no distinction between the various "spheres of production." The development and flexibility of the markets for capital, labor and goods determine the speed of market adjustments. Yet, again, Marx confounds his concepts of "profit" and "rate of profit" with the normal meanings of those terms, in explaining once again why capital flows satisfy the natural demand of capital to receive the "average profit."

"[Capital] withdraws from a sphere with a low rate of profit and invades others, which yield a higher profit. Through this incessant outflow and influx, or, briefly, through its distribution among the various spheres, which depends on how the rate of profit falls here and rises there, it creates such a ratio of supply to demand that the average profit in the various spheres of production becomes the same, and values are, therefore, converted into prices of production."

"Profits" and "rates of profits" as Marx defines them obviously perform no such function.

Capitalists thus have a common interest in increasing their ability to exploit labor - and will act together to further that interest. The "intensity of exploitation of the sum total of labour by the sum total of capital" determines the "average profit" enjoyed by all capital.

Marx certainly gets this one right! However, for "profits" as normally defined - for the "profits" for which capitalists strive - the exploitation of industrial labor is not the only factor.

Profit rates tend to decline as capitalist systems develop. This was explained by Adam Smith a century before Marx, and Marx's explanation - attributing the phenomenon solely to the relative expansion of capital invested in industrial facilities and materials - is at least a logical part of the full correct explanation. For once, his definitions of "rates of profit" and "total capital" logically provide a conclusion similar to that using the normal definitions.
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Marx uses this phenomenon - "the law of the progressive falling of the rate of profit" - as proof that all profits come from "surplus-value" extracted unjustly from labor. As wages decline as a proportion of industrial capital, "surplus-value" and "profits" naturally "must also be continually on the decrease compared to the amount of value represented by the invested total capital." This does not prevent them from increasing nominally as long as that increase is not as fast as the increase in the other factors in industrial capital.
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Marx then asserts the superiority of his explanation for this phenomenon over that of the "bourgeois economists" who have offered various theories about it. In his usual style, he runs the various permutations of his views through his mathematical model. He takes this opportunity to once again note that increases in productivity destroy jobs - (a myopically incomplete view that would lead to the "mature economy," "automation scare" and "declinist" stupidities that at various times afflicted many 20th century economists- and still afflict some, today).

This is a myopically incomplete view that would lead to the "mature economy," "automation scare" and "declinist" stupidities that at various times afflicted many 20th century economists- and still afflict some, today. In modern times at least, the proportionate share of wages remained relatively steady despite substantial rates of economic development and increases in productivity over the decades. Increases in productivity have naturally - continuously - produced far more - and far better - jobs than the ones destroyed. Once again, Marx's "scientific" predictions failed to reflect reality – at least until the decline of private sector labor unions and the recent fifteen-years of Keynesian economic policies prior to 2014.

Marx discusses a number of influences that can counteract this tendency. However, they just slow it down rather than ending it. An increased intensity of labor exploitation by such means as lengthening the working day or speeding up the machinery or being a first mover with new improvements in machinery or productive procedures, a temporary depression of wages below subsistence levels, declining costs of productive assets, persistent and growing rates of unemployment, the development of new industries - primarily producing "luxury" goods, certain aspects of foreign trade, are among the factors he analyzes in his usual style.
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Internal contradictions that undermine capital:

There are inherent contradictions in the capitalist system that continuously undermine its stability and must ultimately destroy it. These contradictions are made manifest during periodic crises, which serve violently to wrench matters back into balance, only to launch capital at an ever accelerating rate back on its course towards ultimate collapse.
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Constant increases in production also outrun markets due to the subsistence levels at which wages are kept.

Capitalism is a system driven to constant increases in production for the limited purpose of further expansion of production. Production is "an end in itself."

"A rift must continually ensue between the limited dimensions of consumption under capitalism and a production which forever tends to exceed this immanent barrier."

Capitalist incentives constantly drive both capitalist expansion and increases in productivity. Constant increases in production create competitive pressures that drive down prices and profit rates and force even more efforts at increased productivity. But technical advances accelerate the depreciation of existing capital. Constant increases in production also outrun markets due to the subsistence levels at which wages are kept.
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Capitalism is a system driven to constant increases in production for the limited purpose of further expansion of production. Production is "an end in itself." It is not accompanied by any incentive for a corresponding "expansion of the living process of the society of producers." Indeed, all the incentives promote the greatest possible exploitation of the means of production - including labor.
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Because of its great efficiency, capitalism drives out all alternative forms of production with which it comes into competition. This process increases the proportion of the laboring masses dependent on wage labor. The constant expansion of capitalism further stimulates the growth of the laboring population, "continually creating an artificial over-population."
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The continuation of this process depends on the continuing "expropriation and pauperisation of the great mass of producers." This process of constantly increased production accompanied by increasingly widespread pauperization is obviously inherently imbalanced.
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Capitalist production is thus a passing economic phase - merely "a historical means of developing the material forces of production and creating an appropriate world market" that is in "continual conflict" with its limited purpose.

"The means -- unconditional development of the productive forces of society -- comes continually into conflict with the limited purpose, the self-expansion of the existing capital."
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"Since the aim of capital is not to minister to certain wants, but to produce profit, and since it accomplishes this purpose by methods which adapt the mass of production to the scale of production, not vice versa, a rift must continually ensue between the limited dimensions of consumption under capitalism and a production which forever tends to exceed this immanent barrier."

The need for consumable products does not end just because the means of payment is lacking.

Not enough means of production are produced to permit the employment of the entire able-bodied population under the most productive conditions so that their absolute working period could be shortened by the mass and effectiveness of the constant capital employed during working-hours."

"[Capitalism] comes to a standstill at a point fixed by the production and realisation of profit, and not the satisfaction of requirements."

Marx interprets the process of crisis in accordance with his own concepts. Prices and wages are driven sharply lower, productivity is ruthlessly increased by all available means, capital values of all kind drop sharply, and the army of unemployed grows. Ultimately, the weakest capitalists are driven under, increased productivity permits profitable operation by the survivors on the basis of capital of diminished value, permitting recovery of profit rates and resumption of profitable operation for the survivors.

"And thus the cycle would run its course anew. Part of the capital, depreciated by its functional stagnation, would recover its old value. For the rest, the same vicious circle would be described once more under expanded conditions of production, with an expanded market and increased productive forces."

"Over-production" is an excess of capital, not an excess of means of production or commodities when viewed from outside the capitalist system. The need for consumable products does not end just because the means of payment is lacking.

"Over-production of capital is never anything more than over-production of means of production -- of means of labour and necessities of life -- which may serve as capital, i.e., may serve to exploit labour at a given degree of exploitation; a fall in the intensity of exploitation below a certain point, however, calls forth disturbances, and stoppages in the capitalist production process, crises, and destruction of capital. It is no contradiction that this over-production of capital is accompanied by more or less considerable relative over-population. [The system of capitalist production continuously creates] a relative over-population, an over-population of labourers not employed by the surplus-capital owing to the low degree of exploitation at which alone they could be employed, or at least owing to the low rate of profit which they would yield at the given degree of exploitation."

Problems with the over-production of consumable commodities are apparent in the business cycle, Marx points out. He criticizes those economists who deny that such over-production exists. However, such over-production exists only in the sense that there is insufficient means to pay, not because there is a lack of need.

"There are not too many necessities of life produced, in proportion to the existing population. Quite the reverse. Too little is produced to decently and humanely satisfy the wants of the great mass."
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"There are not too many means of production produced to employ the able-bodied portion of the population. Quite the reverse. In the first place, [the capitalist class is incapable of working and survives only by exploiting others]. In the second place, not enough means of production are produced to permit the employment of the entire able-bodied population under the most productive conditions so that their absolute working period could be shortened by the mass and effectiveness of the constant capital employed during working-hours."
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"Not too much wealth is produced. But at times too much wealth is produced in its capitalistic, self-contradictory forms."
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"[Capitalism] comes to a standstill at a point fixed by the production and realisation of profit, and not the satisfaction of requirements."

The flow of capital into foreign markets seeking the higher profits available there eases somewhat this surfeit of capital. The capital outflow does not cause a capital shortage at home, but exists alongside the continued expansion of domestic capital. However, it spreads capitalist production methods and problems to new markets, worldwide.

Thus, this tendency for profit rates to decline has rightly been of great concern for bourgeois economists like Ricardo. For when the rate of profit gets too low, new capitalist offshoots and small capitalists can't make up the difference in volume. All capitalist activity concentrates in a few large hands. The ability of capitalism to progress - to continue its expansion - ends.

It all sounds so reasonable. It is all presented as the result of "scientific investigations." In forecasting continued industrial concentration, Marx finally gets a forecast right. What then could have gone wrong for Marx? What could have gone right for capitalism? Why didn't reality conform to Marx's expectations?
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Das Kapital is essentially wrong from top to bottom. Competitive capitalism is in fact a consumer driven system. Even producers of "necessaries" have to carefully attend the needs and desires of their customers, or substitutes will be found and ancillary uses will decline and they will soon be out of business.
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There is no need here to go over all the particular errors pointed out previously. A few are especially applicable, however.

Marx's description of the characteristics of capitalism has no relation whatsoever to the realities of competitive market capitalist systems. However, many of the characteristics described herein are startlingly similar to those of 20th century communist and non-market socialist systems.

Marx is still fixated on the industrial subsistence laborer, who becomes a smaller and smaller part of the workforce as capitalism progresses. As machines take over an increasing part of the actual production process, the skill demanded of the workers who direct or tend those machines naturally increases, providing increasing scope for a highly paid skilled workforce producing considerably more with fewer workers. Unskilled labor migrates out of the factories and into the service sector.

Marx grossly underestimates the vitality and flexibility of small business and the entrepreneurial class that constantly establishes "new offshoots" of economic activity for capital expansion.

Marx describes some of the processes of economic crises in lurid detail, but he disregards the particular reasons for particular economic crises in history. However, in this, he is like a lot of modern economists - depending on theory and disregarding the impacts of events in economic history. Yet, he is very well aware of the elements of 19th century economic history during his lifetime.

Marx underestimates the processes of creative destruction that he here at least recognizes. The constant elimination of the least efficient producers constantly opens scope for the most efficient producers and for entirely new lines of production. Protecting the dinosaurs from competition and keeping them alive - as is so frequently done - imposes heavy penalties on an entire economy. Communist and nonmarket socialist systems inevitably become heavily burdened with industrial dinosaurs and white elephants that come to litter their landscape. There is nobody in such systems with any incentive to shut them down, improve them, or even more than minimally maintain them.

Marx's capitalist system is still incredibly narrow and rigid and unresponsive to consumer wishes. The contributions of commercial and financial factors are still ignored - not to be brought into consideration until the following chapters. Similarly, the signals constantly provided by competitive markets remain lurking in the background to be occasionally referred to and always dismissed as unproductive.

His capitalist system can thus only plunge blindly ahead in a senseless drive to achieve greater production. In this, it is startlingly similar to actual conditions in communist and nonmarket socialist states - except that they generally fail even at production except for a few low quality goods that they sometimes produce in over-abundance. While he recognizes the pricing mechanism, as yet, the regulatory roles of interest rates and commercial flows and securities markets are not a part of his system.

Marx's capitalist system admits of no legitimate mass demand other than for "necessaries." It is a system that only religious monks would be content to live under. It is here again startlingly like the actual operations of communist and nonmarket socialist states.

Marx's capitalist system does not respond to the infinite profitable possibilities for variety and gradients of quality. Again, it is startlingly like communist and non-market socialist systems.

Which is not to say that there are not real problems in capitalist systems. Those problems may be systemic in politics or management, but they are discreet problems for economic systems. They exist in the particular errors and stupidities of private and government policies, and in levels of political and management inertia that can only be broken by the threats generated by economic crises. The economic articles in FUTURECASTS always include a review of the most severe of such contemporary problems - and never lack for subject matter.

Merchants:

At last, Marx focuses on commercial factors. He begins by examining the differences when commodities are brought to market by merchants rather than by employees of industrialists. After all the nasty things he has previously said about them, Marx now inconsistently discovers that merchants do in fact provide some important advantages that even he must recognize.
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Merchant expertise facilitates marketing and increases the efficiency of commerce. They can both diversify and gain the benefits of scale by merchandising many different products and/or similar products from several producers.

By facilitating commerce, the activities of merchants in normal times help bring prices down for consumers while maintaining profit levels for capital. In other words, they increase the productivity of capital generally.
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The merchant uses his own capital - his own or borrowed - while the industrialist's employees use the industrialist's capital. This has several beneficial implications for the industrialist and thus for society.
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By being constantly available to take finished goods, the merchant speeds up turnover rates so that the industrialist needs less capital or can produce more with the capital that he has. However, for the nation as a whole, capital is still tied up in inventories awaiting final sale. It is just in different hands.
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Nevertheless, Marx notes, the existence of merchants still bestow substantial benefits on production. They specialize in commerce and permit industrialists to specialize in production. Their greater expertise facilitates marketing and increases the efficiency of commerce so that less capital is tied up in commercial activities. They can both diversify and gain the benefits of scale by merchandising many different products and/or similar products from several producers. They relieve the industrialists from short term market risks.
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"But no value is produced in the process of circulation, and, therefore, no surplus-value."

Nevertheless, the merchant adds no value to the commodities sold, Marx must still insist. The industrialist allows himself to be exploited by the merchant in order to gain all the benefits of the merchant’s activities – benefits that the industrial laborers do not participate in. To support this contention, he still has nothing to offer but his basic tautological reasoning. Ignoring the benefits, he relies instead on his narrow definitions to assert that the merchant has produced no “surplus value”.

"But no value is produced in the process of circulation, and, therefore, no surplus-value."

Marx does not, of course, even consider whether merchants provide benefits to consumers, or how the laborers would be able to find employment without merchant sales activities.

Commerce "realizes, but does not create, values." Marx still relies on nothing more than distinctions without a difference. The merchant can only realize the values already existing in the commodities. "Merchant's capital therefore does not create either value or surplus-value, at least not directly." However, by the benefits bestowed, it can increase the scale and productivity of industrial capital, the value created by industrial capital, and the profitability of industrial capital.

The engineer who increases the productivity of machinery adds the value of his labors to the commodities produced, but the merchants who accomplish the same thing by their operations in commerce somehow do not.
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Here, too, Marx offers no explanation as to why distant merchants are so much more successful in "realizing" value in commodities - over and above the costs of transportation - than nearby merchants. He offers no explanation as to how the same merchant can be more successful at "realizing" value with goods that require storage than with those that do not. Storage adds no value, according to Marx. The overhead costs and profits associated with transportation of manufactured goods in circulation do not reflect "value" added to commodities.

Merchant's reap profits from this process not independently by their activities, but by sharing in the industrialist's profits. The industrialist sells his commodities to the merchant at a price below its "value" in order to more conveniently circulate his capital in his productive process. This permits the merchant - by selling at "value" - to gain the merchant's profit.
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The merchant's wage workers do not produce surplus-value. By their wages, they share in the merchant's profit, which is a share in the industrialist's profit. However, the merchant still benefits by their activities by paying wages that are less than the share of the profits that they earn.

"Just as the labourer's unpaid labour directly creates surplus-value for productive capital, so the unpaid labour of the commercial wage-worker secures a share of this surplus-value for merchant's capital."

In this, the merchant's wage-workers are like the back office workers of the industrialist. They don't create value - they just help to "realize" it - and as such they share by their wages in the industrialist's profit. If the industrialist did not deal through merchants, his own staff would have to do the work of the merchant's staff.
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By financing its capital needs, merchants can buy before they accumulate the necessary capital. This borrowed money is exchanged with industrial capitalists when purchasing their products. This lends elasticity to production and circulation that can become overstretched. It permits both merchants and producers to continue operations beyond what can be timely sold to consumers, resulting in disruptions - crises - that "violently" restore equilibrium.

"Hence the phenomenon that crises do not come to the surface, do not break out, in the retail business first, which deals with direct consumption, but in the spheres of wholesale trade, and banking, which places the money-capital of society at the disposal of the former."

The underlying regulatory power of industrial labor power is hidden from view even more for commercial factors than for industrialists. Prices do, indeed, vary widely and frequently fail to reflect such "values." It is only in the averages for society as a whole that such values determine competitive prices.

Marx then examines how commercial activities give the appearance of affecting and determining prices independently of the factors of production. The underlying regulatory power of industrial labor power is hidden from view even more for commercial factors than for industrialists. Prices do, indeed, vary widely and frequently fail to reflect such "values." It is only in the averages for society as a whole that such values determine competitive prices.
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Indeed, without the explanation that he offers, Marx asserts:

"[I]t is absolutely unintelligible why competition should reduce the general rate of profit to one level instead of another, e.g. make it 15% instead of 1,500%. Competition can at best only reduce the general rate of profit on one level. But it contains no element by which it could determine this level itself."

Even here, with the addition of various commercial factors into his model, Marx's conception of the capitalist system remains simplistic, rigid, and blind. For example, there is evidently here still no appreciation of the role of interest rates - the time cost of money - in regulating overall rates of profit. Of course, the connection in reality is with "rates of profit" as normally defined - not as Marx defines that phrase. By his semantics games, he has stripped himself of the ability to even discuss this relationship. Once interest rates are brought into the picture, the competitive system does indeed contain a very powerful element determining profit levels.
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Of course, consumers in the market also have some say in what constitutes acceptable prices and profit levels. However, Marx still confines himself to necessities and considerably underplays demand factors.

Banks and other factors in the financing mechanism also operate, as do merchants, as specialists that increase the efficiency of capital by the efficient conduct of the necessary functions of money. They finance operations, safeguard "hoards" that act as reserves or await investment opportunity, make payments and accept receipts, square accounts, exchange different forms of money, and so forth, as needed to facilitate the flow of money-capital through the productive and commercial cycles of capital circulation. This activity "concentrates, shortens, and simplifies" the technical operations of money circulation. It substantially increases the turnover rate of money-capital, thus increasing efficiency and reducing the sums needed for operations.
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However, they create no "surplus-value," as that is defined by Marx. They merely help "realize" surplus-value, and so merely claim a share in the industrialists profits.
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Up to this point, credit-capital has been lurking in the background, as Marx sometimes notes the ability to borrow capital. Here, Marx finally deals with credit operations - the money lending of "money-dealers." This segment here occupies just half a page. See, Karl Marx, Capital (Das Kapital) vol. 3 (II), "Interest, Rent, and Use-Values," at "I) Interest and Returns on Equity Capital."
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He mentions once again that "money-dealers" make money by doing nothing more than advancing money. M-M' is his simple mathematical explanation. They contribute no other function either in production or circulation. Interest rates are mentioned just once in this chapter, but only in connection with international money flows seeking best returns, and without further elaboration. The many roles of interest rates - the time cost of money - are left to the next part.
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Marx goes on for some time elaborating the historic development of merchant's capital and its economic roles in the capitalist process. While he repeatedly states that merchant capital and financial capital do nothing the industrialist cannot do himself - and in some ways does do himself - he also must repeatedly explain how their activities facilitate production and, even more, increase the efficiency of distribution. He criticizes those who thus deny that there is any distinction between industrial capital and commercial capital.

This criticism is based on Marx' tautological reasoning. Merchant and financial capital provide no value because the benefits they bestow do not fit Marx' definition of value.

There is no value in the transportation and distribution of goods for consumption across substantial distances to places where they are otherwise not available. Marx maintains this untenable position even when discussing trade between nations in centuries past when the difficulties and dangers of travel were great. Before the rise of capitalist production, commercial profit "not only appears as outbargaining and cheating, but also largely originates from them."
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Now in the age of capitalist production, "commerce becomes the servant of industrial production." "Merchant's capital does no more than carry on the process of circulation." This is essential for capitalist production, Marx repeatedly acknowledges.

It is thus the same as any mechanical tool of industrial production. Yet, it adds no "value."

The abstract industrial labor theory of value defended:

Skeptics were not satisfied with the arguments advanced in Volume 3, and so Engels felt impelled to add a 17 page supplement to later editions in defense of Marx's concept.

He proceeds by demonstrating at length the obvious - that industrial labor is indeed a major determinant of "value" both in pre-capitalist barter systems and of prices in capitalist competitive market systems and in all systems in between.

However, this was acknowledged even by Adam Smith a century before Marx. This does not deal with the primary objection that by itself industrial labor is grossly inadequate to explain capitalist value creation.

The "socially necessary" factor is ignored altogether in Volume 2 of “Capital” wherein it is repeatedly violated. It is in Book 3 that it is brought back into the picture – approximately 10 times in the 900 pages of Book 3, affirming its continuing importance to Marx and Engels. It is also in Book 3 that demand is brought into the picture for establishing through competition the market prices that determine what labor is “socially necessary.”

However, the characteristics of demand are never analyzed beyond their division between “necessities” that are absolute and “luxuries” that are disparaged and can be dispensed with. They are always just a “given” in the problem.

The equalization of profit rates for different capital investments is heavily relied on by Engels as a market factor capable of establishing the market prices that govern and define the labour that is socially necessary..

He is apparently oblivious to the fact that this applies only to "total capital" and "profits" as those concepts are normally defined. It does not apply - IT CAN NOT POSSIBLY APPLY - to those concepts as Marx has redefined them. Once again, Engels confounds his terms - applying the "profits" of "surplus value" to phenomena applicable only to profits as normally defined.

Moreover, competition is acknowledged as the driving force of profit equalization.

However, most necessities are not sole source items. It is consumers who impose competition on producers. The demand side acting through competitive markets thus obviously does have some say after all in the establishment of both prices and "values" - even of necessities

See, Marx, "Capital (Das Kapital)" Volume 1, Part I: "Abstract Labor Standard of Value," and Volume 1, Part II: "Contradictions in Capitalist Industrialization," and Volume 2, Part III: "The Circulation & Expansion of Capital," and Volume 2, Part IV: "Criticism of Adam Smith," and Volume 3, Part VI: "Interest, Rent & Labor Use-Values."

Karl Marx: "Capital (Das Kapital)"	Volume 1, Part I: "Abstract Labor Standard of Value."	Volume 1, Part II: "Contradictions in Capitalist Industrialization."
Volume 2, Part III: "Circulation and Expansion of Capital."	Volume 2, Part IV: "Criticism of Adam Smith."	Volume 3, Part VI: "Interest, Rent & Labor Use-Values."