On “Profit of Enterprise” in Capital 3

H. On “Profit of Enterprise” in Capital 3

The term “profits of enterprise” appeared in the Economic Manuscripts following Ramsay (above, p. 416). Unternehmergewinn, understood as a payment “deriving solely from the operations, or functions, which he [the “active capitalist”] performs as entrepreneur in industry or commerce,” is also found in Capital 3 (MECW

37: 370). 46 We shall try to see whether any substantive modifications to Marx’s perceptions emerge in these somewhat later materials. To be noted first is the implicit denial that knowledge-creation – science and invention – is in any way the responsibility of the industrial capitalist: “Universal labour is all scientific labour, all discovery and all invention. This labour depends partly on the co-operation of the living, and partly on the utilisation of the labours of

43 Shortly thereafter Marx clouds the issue by positing that “surplus gains” themselves include compensation for risk (MECW 33: 282).

44 See also Capital 3: “ . . . investments of capital in lines exposed to greater hazards, for instance in shipping, are compensated by higher prices. As soon as capitalist production, and with

it the insurance business, are developed, the hazards are, in effect, made equal for all spheres of production (cf. Corbet 1841: 100-02); but the more hazardous lines pay higher insurance rates, and recover them in the prices of their commodities” (MECW 37: 207).

J. S. Mill, who allowed for the “risks of the undertaker” within gross profit, also appreciated that when they are “committed for a fixed payment,” the insurance premium becomes a regular production cost (1963–91 [1848]: 404). 45 Noteworthy too is Marx’s further remark that under Socialist organization allowance for insurance would also be required: “At most one could say that, even apart from capitalist production, the producers themselves might have certain expenses, that is, they would have to spend a part of their labour, or of the products of their labour in order to insure their products, their wealth, or the elements of their wealth, against accidents, etc.” (MECW 33: 282). 46 Marx makes to mention of Mangoldt 1855. On Mangoldt’s Unternehmegewinn in relation to uncertainty, and Mangoldt’s predecessors including von Th¨unen, see Tuttle 1927.

H. On “Profit of Enterprise” in Capital 3 431 those who have gone before” (106). Yet more explicitly, “the uninterrupted advance

of science and technology” is represented in Capital 1 as falling “gratis” to the capitalist: “science and technology give capital a power of expansion independent of the given magnitude of the capital actually functioning. They react at the same time on that part of the original capital which has entered upon its stage of renewal. This, in passing into its new shape, incorporates gratis the social advance made

while its old shape was being used up” (MECW 35: 601). 47 This orientation has been encountered in the 1861–63 materials (above, pp. 420–1). It will also be recalled that the “surplus gain” of the Economic Manuscripts formally included managerial wages received by the industrial capitalist (above, p. 414); and, consistently with this, that the inverse relation there posited between industrial profit and interest included the managerial return within the former (above, p. 416). In Capital 3 too the return to the active capitalist reflecting “entrepreneurial” functions in their entirety varies inversely with contractually paid interest (MECW 37: 370–1). There is then no change of orientation in this regard. Also to be noted is use of the term “appearance” with respect both to the profit obtained by the “functioning capitalist” and the interest obtained by the owner of capital, considering that both reflect exploitation despite the impression to the contrary: “The interest he pays to the [money capitalist] thus appears as that portion of gross profit which is due to the ownership of capital as such. As distinct from this, that portion of profit which falls to the active capitalist appears now as profit of enter- prise, deriving solely from the operations, or functions, which he performs with the capital in the process of reproduction, hence particularly those functions which

he performs as entrepreneur in industry or commerce” (371; emphasis added). Appearance is particularly misleading in the case of interest “[b]ecause, in the first place, the rate of interest is independently determined despite its dependence upon the general rate of profit, and, in the second place, like the market price of commodi- ties, it appears in contrast to the intangible rate of profit as a fixed, uniform, tangible

and always given relation for all its variations” (374–5). 48 Furthermore, interest does

47 An illustration of the theme relates to chemical technology: “Every advance in chemistry not only multiplies the number of useful materials and the useful applications of those already

known, thus extending with the growth of capital its sphere of investment. It teaches at the same time how to throw the excrements of the processes of production and consumption back again into the circle of the process of reproduction, and thus, without any previous outlay of capital, creates new matter for capital” (MECW 35: 601). 48 Yet elsewhere Marx cites Ramsay (1836: 206–7), apparently favorably, in a less simplistic fashion. The “rate of net profit” or interest “depends partly upon the rate of gross profits, partly on the proportion in which these are separated into profits of capital and those of enterprise, [which] proportion again depends upon the competition between the lenders and borrowers of capital,” competition “influenced, though by no means entirely regulated, by the rate of gross profit expected to be realized . . . because on the one hand many borrow without any view to productive employment, and, on the other, because the proportion of the whole capital to be lent, varies with the riches of the country independently of any change in gross profits” (emphasis added).

Is There a Marxian “Entrepreneur”?

not appear to be a component of surplus value because direct exchange between money capital and labor is not entailed (376–7).

Marx does not postulate an inverse interest-wage relation; rather, an inverse rela- tion exists between wages and gross profit or “surplus value as a sum, a whole, the unity of these two parts,” namely interest and “profit of enterprise” (378–9). Similarly, the “profit of enterprise” as such is not inversely related to the wage: “ . . . profit of enterprise is not related as an opposite to wage labour, but only to interest. . . . [A]ssuming the average [gross] profit to be given, the rate of the profit of enterprise is not determined by wages, but by the rate of interest. It is high or low in inverse proportion to it” (377). Marx is yet more precise regarding the “profits of enterprise” as residual, citing Ramsay – as in the Economic Manuscripts (above, p. 416) – to the effect that they “depend upon the net profits of capital [viz. interest], not the latter upon the former.” There is nothing new in all this as far as concerns the relation between the two parts of “surplus value”; and in both versions the surplus after deduction of interest includes the entire “profits of enterprise.”

The division between the categories of gross profit applies even when the indus- trial capitalist operates with his own funds. In all cases the “average profit established by the equalisation of capitals” relates to both categories within gross profit albeit that one is a return to “entrepreneurship” (372–3). There is though this difference, that “as long as the owners of the capital employ it on their own in the repro- duction process, they do not compete in determining the rate of interest” (367) – “at least not actively” (376). It is “the division of capitalists into money capitalists and industrial capitalists that transforms a portion of the profit into interest, that generally creates the category of interest; and it is only the competition between these two kinds of capitalists which creates the rate of interest” (368).

In the Capital 3 version, the profit of enterprise derives “solely from the operations, or functions,” undertaken by the “active capitalist” performed as “entrepreneur in industry or commerce” (above, p. 430). Can we be more precise about these activities? They are said to be no “sinecure,” for “the capitalist directs the pro- cesses of production and circulation. Exploiting productive labour entails exertion, whether he exploits it himself or has it exploited by someone else on his behalf. Therefore, as distinct from interest, his profit of enterprise appears to him as inde- pendent of the ownership of capital, but rather as the result of his functions as a non-proprietor – a labourer ” (378).

Exertion, it would appear, is the essence of the matter, rather than judgement, apart perhaps from a remark that follows immediately: “his function as a capitalist consists in creating surplus value, i.e., unpaid labour, and creating it under the most economical conditions.” But in fact Marx did perceive savings in cost price as “depend[ing] on individual business acumen, alertness, etc.” (208; also 138), and allowed that the “greater or lesser shrewdness and industry of the capitalist” – as

H. On “Profit of Enterprise” in Capital 3 433 also his applications of peculiarly productive capital goods and methods − was

relevant to the yield on capital, although only as far as concerns deviations from average profit:

. . . the rate of profit within the production process itself does not depend on surplus value alone, but also on many other circumstances, such as purchase prices of the means of production, methods more productive than the average, savings of constant capital, etc. And aside from the price of production, it depends on special circumstances, and in every single business transaction on the greater or lesser shrewdness and industry of the capitalist, whether, and to what extent, he buys or sells above or below the price of production and thus appropriates a greater or smaller portion of the total surplus value in the process of circulation (371).

Thus “the manner in which the active capitalist manages his capital, and what gross profit it yields to him as a functioning capital, i.e., in consequence of his functions as an active capitalist” does matter. However, Marx insists that the average itself is independent of “the manner” in which active capitalists in general manage their capitals. At one point Marx even writes of the capitalist’s functions that they “are prescribed by the branch of industry concerned” (370; emphasis added). The notion of an average profit rate, reflecting not only a statistical index but the tendency towards uniformity of returns, thus helped save the day – the successful entrepreneur could be bypassed, precisely as in the 1861–63 document (above, p. 418).

To be noted now is the allowance that the function of “direct[ing] the processes of production and circulation” – the “exertion” entailed in exploiting labor − might

be delegated by the capitalist to “someone else on his behalf” (above, p. 432). As in the Economic Manuscripts (above, p. 414), Marx rejected only the identification of profit of enterprise with wages of superintendence when engaged in by the capitalist himself, referring to profit net of interest as comprising “profit of enterprise, and further of wages of superintendence” (380; emphasis added). In brief, a part only of the total profit net of interest constituted high-powered wages which, in large-scale plants, might justify “a special salary” for higher management: “The conception of profit of enterprise as the wages of superintendence, arising from the antithesis of profit of enterprise to interest, is further strengthened by the fact that a portion of profit may, indeed, be separated, and is separated in reality, as wages, or rather the reverse, that a portion of wages appears under the capitalist mode of production as integral part of profit” (381; emphasis added). The net return in so-called “profit of enterprise,” after managerial payments have been met, is not explored further any more than in the Economic Manuscripts. It is apparently taken for granted that this element has the character of Knight’s “political power to exploit.”

Despite all his allowances for the managerial element, Marx was loath to treat it simply as a form of labor-power, as we shall now show. Consider the reiteration in Capital 3 of the 1861–63 theme (see above, p. 414) that the task of coordination,

Is There a Marxian “Entrepreneur”?

though common to all complex organization – “a productive job, which must

be performed in every combined mode of production” (MECW 37: 382) – takes on a special aspect under capitalism entailing the “antithesis” between labor and means of production: “The greater this antithesis, the greater the role played by supervision. Hence it reaches its peak in the slave system [Cairnes 1862: 44]. But it is indispensable also in the capitalist mode of production, since the production process in it is simultaneously a process by which the capitalist consumes labour power.” Assuming then capitalist arrangement, “it is quite proper to compel the wage labourer to produce his own wages and also the wages of supervision, as compensation for the labour of ruling and supervising him . . .” (384; emphasis added).

Furthermore, while allowing a wages element in “profit” reflecting the manage- rial function, Marx could not bring himself to treat that function in the same way as general labor power, doubtless because to do so would imply that managerial labor generated surplus, upsetting the apple cart in the case of the capitalist who himself undertakes management. It is true that Marx (as in 1861–63) allowed for capitalists’ supervisory functions that do not “originate in the purely capitalistic process of production,” i.e., are not “confine[d] . . . solely to the function of exploiting the labour of others” (385) – reflecting the universal task of control in the presence of “combination and cooperation of many in pursuance of a common result”; but this allowance turns out to be a formal matter only, for he immediately steps back to imply that there is, in practice, no way of isolating the exploitative element when supervision is exercised by the capitalist manager, such activity being rewarded in excess of the “moderate” wage available to hired management: “The industrial capitalist is a worker, compared to the money capitalist, but a worker in the sense of capitalist, i.e., an exploiter of the labour of others. The wage which he claims and pockets for this labour is exactly equal to the appropriated quantity of another’s labour and depends directly upon the rate of exploitation of this labour, in so far as he undertakes the effort required for exploitation; it does not, however, depend on the degree of exertion that such exploitation demands, and which he can shift to a manager for moderate pay.”

To summarize: gross profit (net of interest) reflects “effort” or “exertion” of the capitalist engaged in “exploitation.” Second, and somewhat paradoxically, the element of “exertion” entailed by this exploitative function can be delegated to paid managers. Third, even in the latter case the capitalist yet receives a net return; profit (net of interest) cannot be entirely reduced to wages of management in the orthodox fashion. Even so, the discussion as a whole leaves the reader with the nagging possibility that it is not this net element in profit that alone constitutes surplus value (in addition always to interest), but that surplus value includes the return to management since the “exploitation” element within the latter return could not in practice be isolated. It is clear that the managerial element within entrepreneurial profit created an embarrassment for the doctrine of surplus value when the capitalist himself acted as manager.

J. On Joint-Stock Organization and Limited Liability