 The value of every commodity produced in the capitalist way is represented in the formula: C = c + v + s. If we subtract surplus-values from this value of the product there remains a bare equivalent or a substitute value in goods, for the capital-value c + v expended in the elements of production. For example, if the production of a certain article requires a capital outlay of 500, of which 20 are for the wear and tear of instruments of production, 380 for the materials of production, and 100 for labour-power, and if the rate of surplus-value is 100%, then the value of the product = 400c + 100v + 100s = 600. After deducting the surplus-value of 100, there remains a commodity-value of 500 which only replaces the expended capital of 500. This portion of the value of the commodity, which replaces the price of the consumed means of production and labour-power, only replaces what the commodity costs the capitalist himself. For him it, therefore, represents the cost-price of the commodity. What the commodity costs the capitalist and its actual production cost are two quite different magnitudes. That portion of the commodity-value making up the surplus-value does not cost the capitalist anything simply because it costs the labourer unpaid labour. Yet, on the basis of capitalist production, after the labourer enters the production process he himself constitutes an ingredient of operating productive capital, which belongs to the capitalist. Therefore, the capitalist is the actual producer of the commodity. For this reason the cost-price of the commodity necessarily appears to the capitalist as the actual cost of the commodity. If we take k to be the cost-price, the formula C = c + v + s turns into the formula C = k + s, that is, the commodity-value = cost-price + surplus-value. The grouping of the various value portions of a commodity which only replace the value of the capital expended in its production under the head of cost-price expresses, on the one hand, the specific character of capitalist production. The capitalist cost of the commodity is measured by the expenditure of capital, while the actual cost of the commodity is measured by the expenditure of labour. Thus, the capitalist cost-price of the commodity differs in quantity from its value, or its actual cost-price. It is smaller than the value of the commodity, because, with C = k + s, it is evident that k = C - s. On the other hand, the cost-price of a commodity is by no means simply a category which exists only in capitalist book-keeping. The individualisation of this portion of value is continually manifest in practice in the actual production of the commodity, because it has ever to be reconverted from its commodity-form by way of the process of circulation into the form of productive capital, so that the cost-price of the commodity always must repurchase the elements of production consumed in its manufacture. The category of cost-price, on the other hand, has nothing to do with the formation of commodity-value, or with the process of self-expansion of capital. When I know that of the value of a commodity worth 600, five-sixths, or 500, represent no more than an equivalent of the capital of 500 consumed in its production and that it can therefore suffice only to repurchase the material elements of this capital, I know nothing as yet either of the way in which these five-sixths of the value of the commodity, which represent its cost-price, are produced, or about the way in which the last sixth, which constitutes its surplus-value, was produced. The investigation will show, however, that in capitalist economics the cost-price assumes the false appearance of a category of value production itself. To return to our example. Suppose the value produced by one labourer during an average social working-day is represented by a money sum of 6s. = 6M. Then the advanced capital of 500 = 400c + 100v represents a value produced in 1,666 ten-hour working-days, of which 1,333 working-days are crystallised in the value of the means of production = 400c, and 333 are crystallised in the value of labour-power = 100v. Having assumed a rate of surplus-value of 100%, the production of the commodity to be newly formed entails a labour expenditure = 100v + 100s = 666 ten-hour working-days. We know, then (see Buch 1, Kap. VII, S. 201/193) [English edition: Ch. IX, p. 212.-Ed.] that the value of the newly created product of 600 is composed of 1) the reappearing value of the constant capital of 400 expended for means of production, and 2) a newly produced value of 200. The cost-price of the commodity = 500 comprises the reappearing 400c and one-half of the newly produced value of 200 ( = 100v), that is, two elements of the commodity-value which are of entirely different origin. Owing to the purposive nature of the labour expended during 666 ten-hour working-days, the value of the consumed means of production amounting to 400 is transferred from these means of production to the product. This previously existing value thus reappears as a component part of the value of the product, but is not created in the process of production of this commodity. It exists as a component of the value of the commodity only because it previously existed as an element of the invested capital. The expended constant capital is therefore replaced by that portion of the value of the commodity which this capital itself adds to that value. This element of the cost-price, therefore, has a double meaning. On the one hand, it goes into the cost-price of the commodity, because it is part of the commodity-value which replaces consumed capital. And on the other hand, it forms an element of the commodity-value only because it is the value of expended capital or because the means of production cost so and so much. It is quite the reverse in the case of the other element of the cost-price. The 666 working-days expended in the production of the commodity create a new value of 200. One portion of this new value merely replaces the advanced variable capital of 100, or the price of the labour-power employed. But this advanced capital-value does not in any way go into the creation of the new value. So far as the advance of capital is concerned, labour-power counts as a value. But in the process of production it acts as the creator of value. The place of the value of the labour-power that obtains within the advanced capital is taken in the actually functioning productive capital by living value-creating labour-power itself. The difference between these various elements of the commodity-value, which together make up the cost-price, leaps to the eye whenever a change takes place in the size of the value of either the expended constant, or the expended variable, part of the capital. Let the price of the same means of production, or of the constant part of capital, rise from 400 to 600, or, conversely, let it fall to 200. In the first case it is not only the cost-price of the commodity which rises from 500 to 600c + 100v = 700, but also the value of the commodity which rises from 600 to 600c + 100v + 100s = 800. In the second case, it is not only the cost-price which falls from 500 to 200c+100v = 300, but also the value of the commodity which falls from 600 to 200c + 100v + 100s = 400. Since the expended constant capital transfers its own value to the product, the value of the product rises or falls with the absolute magnitude of that capital-value, other conditions remaining equal. Assume, on the other hand, that, other circumstances remaining unchanged, the price of the same amount of labour-power rises from 100 to 150, or, conversely, that it falls from 100 to 50. In the first case, the cost-price rises from 500 to 400c + 150v = 550, and falls in the second case from 500 to 400c + 50v = 450. But in either case the commodity-value remains unchanged = 600; one time it is 400c + 150v + 50s, and the other time, 400c + 50v + 150s. The advanced variable capital does not add its own value to the product. The place of its value is taken in the product rather by a new value created by labour. Therefore, a change in the absolute magnitude of the variable capital, so far as it expresses merely a change in the price of labour-power, does not in the least alter the absolute magnitude of the commodity-value, because it does not alter anything in the absolute magnitude of the new value created by living labour-power. Such a change rather affects only the relative proportion of the two component parts of the new value, of which one forms surplus-value and the other makes good the variable capital and therefore passes into the cost-price of the commodity. The two elements of the cost-price, in the present case 400c + 100v, have only this in common that they are both parts of the commodity-value that replace advanced capital. But this true state of affairs necessarily appears reversed from the standpoint of capitalist production. The capitalist mode of production differs from the mode of production based on slavery, among other things, by the fact that in it the value, and accordingly the price, of labour-power appears as the value, or price, of labour itself, or as wages (Buch 1, Kap. XVII) [English edition: Ch. XIX. Ed.]. The variable part of the advanced capital, therefore, appears as capital expended in wages, as a capital-value which pays for the value, and accordingly the price, of all the labour expended in production. Let us assume, for instance, that an average ten-hour social working-day is incorporated in a sum of money amounting to 6 shillings. In that case the advance of a variable capital of 100 represents the money expression of a value produced in 333 ; ten-hour working-days. But this value, representing purchased labour-power in the capital advanced, does not, however, form a part of the actually functioning productive capital. Its place in the process of production is taken by living labour-power. If, as in our illustration, the degree of exploitation of the latter is 100%, then it is expended during 666 ten-hour working-days, and thereby adds to the product a new value of 200. But in the capital advanced the variable capital of 100 figures as capital invested in wages, or as the price of labour performed during 666 ten-hour days. The sum of 100 divided by 666 gives us 3 shillings as the price of a ten-hour working-day, which is equal in value to the product of five hours' labour. Now, if we compare the capital advanced on the one hand with the commodity-value on the other, we find: In this formula, the portion of capital invested in labour-power differs from that invested in means of production, such as cotton or coal, only by serving as payment for a materially different element of production, but not by any means because it serves a functionally different purpose in the process of creating commodity-value, and thereby also in the process of the self-expansion of capital. The price of the means of production reappears in the cost-price of the commodities, just as it figured in the capital advanced, and it does so because these means of production have been purposively consumed. The price, or wages, for the 666 working-days consumed in the production of these commodities likewise reappears in the cost-price of the commodities just as it has figured in the capital advanced, and also because this amount of labour has been purposively expended. We see only finished and existing values the portions of the value of the advanced capital which go into the making of the value of the product but not the element creating new values. The distinction between constant and variable capital has disappeared. The entire cost-price of 500 now has the double meaning that, first, it is that portion of the commodity-value of 600 which replaces the capital of 500 expended in the production of the commodity; and that, secondly, this component of the commodity-value exists only because it existed previously as the cost-price of the elements of production employed, namely means of production and labour, i.e., as advanced capital. The capital-value reappears as the cost-price of a commodity because, and in so far as, it has been expended as a capital-value. The fact that the various components of the value of the advanced capital have been expended for materially different elements of production, namely for instruments of labour, raw materials, auxiliary materials, and labour, requires only that the cost-price of the commodity must buy back these materially different elements of production. So far as the formation of the cost-price is concerned, however, only one distinction is appreciable, namely that between fixed and circulating capital. In our example we have set down 20 for wear and tear of instruments of labour (400c = 20 for depreciation of instruments of labour + 380 for materials of production). Before the productive process the value of these instruments of labour was, say, 1,200. After the commodities have been produced it exists in two forms, the 20 as part of the value of the commodity, and 1,200 - 20, or 1,180, as the remaining value of the instruments of labour which, as before, are in the possession of the capitalist; in other words, as an element of his productive, not of his commodity-capital. Materials of production and wages, as distinct from means of labour, are entirely consumed in the production of the commodity and thus their entire value goes into that of the produced commodity. We have seen how these various components of the advanced capital assume the forms of fixed and circulating capital in relation to the turnover. Accordingly, the capital advanced = 1,680: fixed capital = 1,200 + circulating capital = 480 ( = 380 in materials of production plus 100 in wages). But the cost-price of the commodity only = 500 ( 20 for the wear and tear of the fixed capital, and 480 for circulating capital). This difference between the cost-price of the commodity and the capital advanced merely proves, however, that the cost-price of the commodity is formed exclusively by the capital actually consumed in its production. Means of production valued at 1,200 are employed in producing the commodity, but only 20 of this advanced capital-value are lost in production. Thus, the employed fixed capital goes only partially into the cost-price of the commodity, because it is only partially consumed in its production. The employed circulating capital goes entirely into the cost-price of the commodity, because it is entirely consumed in production. But does not this only prove that the consumed portions of the fixed and circulating capital pass uniformly, pro rata to the magnitude of their values, into the cost-price of the commodity and that this component of the value of the commodity originates solely with the capital expended in its production? If this were not so, it would be inexplicable why the advanced fixed capital of 1,200 should not, aside from the 20 which it loses in the productive process, also contribute the other 1,180 which it does not lose. This difference between fixed and circulating capital with reference to the calculation of the cost-price, therefore, only confirms the seeming origination of the cost-price from the expended capital-value, or the price paid by the capitalist himself for the expended elements of production, including labour. On the other hand, so far as the formation of value is concerned, the variable portion of capital invested in labour-power is here emphatically identified under the head of circulating capital with constant capital (that part of capital which consists of materials of production), and this completes the mystification of the self-expansion process of capital. So far we have considered just one element of the value of commodities, namely the cost-price. We must now turn also to the other component of the value of commodities, namely the excess over the cost-price, or the surplus-value. In the first place, then, surplus-value is the excess value of a commodity over and above its cost-price. But since the cost-price equals the value of the consumed capital, into whose material elements it is continually reconverted, this excess value is an accretion in the value of the capital expended in the production of the commodity and returning by way of its circulation. We have already seen earlier that, though s, the surplus-value, springs merely from a change in the value of the variable capital v and is, therefore, originally but an increment of variable capital, after the process of production is over it nevertheless also forms an increment of c + v, the expended total capital. The formula c + (v + s), which indicates that s is produced through the conversion of a definite capital-value v advanced for labour-power into a fluctuating magnitude, i.e., of a constant magnitude into a variable one, may also be represented as (c + v) + s. Before production took place we had a capital of 500. After production is completed we have the capital of 500 plus a value increment of 100. However, surplus-value forms an increment not only of the portion of the advanced capital which goes into the self-expansion process, but also of the portion which does not go into it. In other words, it is an accretion not only to the consumed capital made good out of the cost-price of the commodity, but to all the capital invested in production. Before the production process we had a capital valued at 1,680, namely 1,200 of fixed capital invested in means of production, only 20 of which go into the value of the commodity for wear and tear, plus 480 of circulating capital in materials of production and wages. After the production process we have 1,180 as the constituent element of the value of the productive capital plus a commodity-capital of 600. By adding these two sums of value we find that the capitalist now has a value of 1,780. After deducting his advanced total capital of 1,680 there remains a value increment of 100. The 100 of surplus-value thus form as much of an increment in relation to the invested 1,680 as to its fraction of 500 expended during production. It is now clear to the capitalist that this increment of value springs from the productive processes undertaken with the capital, that it therefore springs from the capital itself, because it is there after the production process, while it is not there before it. 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. This becomes obvious if we assume for a moment that all the expended capital consisted either exclusively of wages, or exclusively of the value of the means of production. In the first case, we should then have the commodity-value of 500v + 100s instead of the commodity-value of 400c + 100v + 100s. The capital of 500 laid out in wages represents the value of all the labour expended in the production of the commodity-value of 600, and for just this reason forms the cost-price of the entire product. But the formation of this cost-price, whereby the value of the expended capital is reproduced as a constituent part of the value of the product, is the only process in the formation of this commodity-value that is known to us. We do not know how its surplus-value portion of 100 is formed. The same is true in the second case, in which the commodity-value = 500c + 100s. We know in both cases that surplus-value is derived from a given value, because this value was advanced in the form of productive capital, be it in the form of labour or of means of production. On the other hand, this advanced capital-value cannot form surplus-value for the reason that it has been expended and therefore constitutes the cost-price of the commodity. Precisely because it forms the cost-price of the commodity, it does not form any surplus-value, but merely an equivalent, a value replacing the expended capital. So far, therefore, as it forms surplus-value, it does so not in its specific capacity as expended, but rather as advanced, and hence utilised, capital. For this reason, the surplus-value arises as much out of the portion of the advanced capital which goes into the cost-price of the commodity, as out of the portion which does not. In short, it arises equally out of the fixed and the circulating components of the utilised capital. The aggregate capital serves materially as the creator of products, the means of labour as well as the materials of production, and the labour. The total capital materially enters into the actual labour-process, even though only a portion of it enters the process of self-expansion. This is, perhaps, the very reason why it contributes only in part to the formation of the cost-price, but totally to the formation of surplus-value. However that may be, the outcome is that surplus-value springs simultaneously from all portions of the invested capital. This deduction may be substantially abbreviated, by saying pointedly and concisely in the words of Malthus: In its assumed capacity of offspring of the aggregate advanced capital, surplus-value takes the converted form of profit. Hence, a certain value is capital when it is invested with a view to producing profit , or, there is profit because a certain value was employed as capital. Suppose profit is p. Then the formula C = c + v + s = k + s turns into the formula C = k + p, or the value of a commodity = cost-price + profit. The profit, such as it is represented here, is thus the same as surplus-value, only in a mystified form that is nonetheless a necessary outgrowth of the capitalist mode of production. The genesis of the mutation of values that occurs in the course of the production process, must be transferred from the variable portion of the capital to the total capital, because there is no apparent distinction between constant and variable capital in the assumed formation of the cost-price. Because at one pole the price of labour-power assumes the transmuted form of wages, surplus-value appears at the opposite pole in the transmuted form of profit. We have seen that the cost-price of a commodity is smaller than its value. Since C = k + s, it follows that k = C - s. The formula C = k + s reduces itself to C = k, or commodity-value = commodity cost-price only if s = 0, a case which never occurs on the basis of capitalist production, although peculiar market conditions may reduce the selling price of commodities to the level of, or even below, their cost-price. 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. But the capitalist may sell a commodity at a profit even when he sells it below its value. So long as its selling price is higher than its cost-price, though it may be lower than its value, a portion of the surplus-value incorporated in it is always realised, thus always yielding a profit. In our illustration the value of the commodity is 600, and the cost-price 500. If the commodity is sold at 510, 520, 530, 560 or 590, it is sold respectively 90, 80, 70, 40, or 10 below its value. Yet a profit of 10, 20, 30, 60, or 90 respectively is realised in its sale. There is obviously an indefinite number of selling prices possible between the value of a commodity and its cost-price. The greater the surplus-value element of the value of a commodity, the greater the practical range of these intermediate prices. This explains more than just the everyday phenomena of competition, such as certain cases of underselling, abnormally low commodity-prices in certain lines of industry , etc. The fundamental law of capitalist competition, which political economy had not hitherto grasped, the law which regulates the general rate of profit and the so-called prices of production determined by it, rests, as we shall later see, on this difference between the value and the cost-price of commodities, and on the resulting possibility of selling a commodity at a profit under its value. The minimal limit of the selling price of a commodity is its cost-price. If it is sold under its cost-price, the expended constituent elements of productive capital cannot be fully replaced out of the selling price. If this process continues, the value of the advanced capital disappears. From this point of view alone, the capitalist is inclined to regard the cost-price as the true inner value of the commodity, because it is the price required for the bare conservation of his capital. But there is also this, that the cost-price of a commodity is the purchase price paid by the capitalist himself for its production, therefore the purchase price determined by the production process itself. For this reason, the excess value, or the surplus-value, realised in the sale of a commodity appears to the capitalist as an excess of its selling price over its value, instead of an excess of its value over its cost-price, so that accordingly the surplus-value incorporated in a commodity is not realised through its sale, but springs out of the sale itself. We have given this illusion closer consideration in Book I (Kap. IV, 2) [English edition: Ch. V, 2. Ed.] ( Contradictions in the General Formula of Capital ), but revert here for a moment to the form in which it was reaffirmed by Torrens, among others, as an advance of political economy beyond Ricardo. Torrens concludes therefrom that the excess of the selling price over the cost-price, or profit, is derived from the fact that the consumers, Indeed, the excess over a given magnitude cannot form a part of this magnitude, and therefore the profit, the excess value of a commodity over the capitalist's expenditures, cannot form a part of these expenditures. Hence, if no other element than the value advance of the capitalist enters into the formation of the value of a commodity, it is inexplicable how more value should come out of production than went into it, for something cannot come out of nothing. But Torrens only evades this creation out of nothing by transferring it from the sphere of commodity-production to that of commodity-circulation. Profit cannot come out of production, says Torrens, for otherwise it would already be contained in the cost of production, and there would not be a surplus over this cost. Profit cannot come out of the exchange of commodities, replies Ramsay, unless it already existed before this exchange. The sum of the value of the exchanged products is evidently not altered in the exchange of these products, whose sum of value it is. It is the same before and after the exchange. It should be noted here that Malthus refers expressly to the authority of Torrens  although he himself has a different explanation for the sale of commodities above their value, or rather has no explanation at all, since all arguments of this sort never, in effect, fail to be reduced to the same thing as the once-famed negative weight of phlogiston. In a social order dominated by capitalist production even the non-capitalist producer is gripped by capitalist conceptions. Balzac, who is generally remarkable for his profound grasp of reality, aptly describes in his last novel, Les Paysans, how a petty peasant performs many small tasks gratuitously for his usurer, whose goodwill he is eager to retain, and how he fancies that he does not give the latter something for nothing because his own labour does not cost him any cash outlay. As for the usurer, he thus fells two dogs with one stone. He saves the cash outlay for wages and enmeshes the peasant, who is gradually ruined by depriving his own field of labour, deeper and deeper in the spider-web of usury. The thoughtless conception that the cost-price of a commodity constitutes its actual value, and that surplus-value springs from selling the product above its value, so that commodities would be sold at their value if their selling price were to equal their cost-price, i.e., if it were to equal the price of the consumed means of production plus wages, has been heralded to the world as a newly discovered secret of socialism by Proudhon with his customary quasi-scientific chicanery. Indeed, this reduction of the value of commodities to their cost-price is the basis of his People's Bank. It was earlier shown that the various constituent elements of the value of a product may be represented in proportional parts of the product itself. For instance (Buch I, Kap. VI 1, 2, S. 211/203) [English edition: Ch. IX, 2, pp. 220-21. Ed.] if the value of 20 lbs. of yarn is 30 shillings namely 24 shillings of means of production, 3 shillings of labour-power, and 3 shillings of surplus-value then this surplus-value may be represented as 1/10 of the product=2 lbs. of yarn. Should these 20 lbs. of yarn now be sold at their cost-price, at 27 shillings, then the purchaser receives 2 lbs. of yarn for nothing, or the article is sold 1/10 below its value. But the labourer has, as before, performed his surplus-labour, only this time for the purchaser of the yarn instead of the capitalist yarn producer. It would be altogether wrong to assume that if all commodities were sold at their cost-price, the result would really be the same as if they had all been sold above their cost-price, but at their value. For even if the value of the labour-power, the length of the working-day, and the degree of exploitation of labour were the same everywhere, the quantities of surplus-value contained in the values of the various kinds of commodities would be unequal, depending on the different organic composition of the capitals advanced for their production.
Economic Manuscripts: Capital, Vol.3, Chapter 1