Shri Ram College of Commerce,
Classical economist David Ricardo — a staunch supporter of free trade — already developed a theory of value based on human labour. His theory saw the value of commodity as objectified by the labour necessary for the production of the same and that which is immediately necessary to its sale on the market (productive transportation e.g). Ricardo says on the matter:
As Karl Marx points out, demand is a crucial element for a magnitude of value:
Within the framework of Marx’s analysis on Capital, the origin of this use-value lies in the production process, which presupposes exchange; where all the desire-related evaluations of buyers take place.
The measure in which people can satisfy their needs is not the produce of ‘ideas’ or evaluations, but the produce of something more “concrete”; which goes beyond the phantoms of the brain.
Exchange is the last process before the sales of commodities, through which the Capitalist makes a profit.
Hence use-values cannot “originate” in exchange.
Karl Marx made it clear that only human labour can give value to the commodity: living labour (that of the workers) and dead labour (e.g. past labour embodied in the means of production). 
Human labour involved in production is, for Marx, the ‘origin’ of value. The buyers, in desiring the commodity, purely express the social necessity of the labour necessary for the production of this commodity. Need alone, however, cannot give value to the commodity.
I shall return to the matter later.
Marx emphasised the determinant demand-related factor to his LTV as well, that is to say, the social need, which is neglected in Ricardo's theory; therefore giving a sense of 'reality' to the concept of value.
Moreover, Marx applied many more corrections to all Ricardian economics— on theory of rent, profit, crises etc.— which will not be discussed here, for a matter of relevance.
In essence, for Marx “a socially necessary amount of labour” was necessarily the only generator of value in commodity production. I shall dwell upon this topic later, in a more detailed way.
As soon as Marx popularised his concept of exploitation arising from unpaid average labour — thanks to the above-mentioned Labour theory of value— Bourgeois economics started faltering under the threat of the very same inconsistency of its apologetic theories. Classical economics, due its internal theoretical contradictions, 'had to change its mind' so as to survive in the realm of apologetic phantoms. Now that the mystery behind pauperisation, alienation and surplus appropriation was unravelled by Marx’s Labour Theory of Value, mainstream political economy had to hide the exploitation motive lying behind the capitalist process of reproduction; namely, lying behind a pure appropriation of labour on the part of the Capitalist (a process on which I shall return later). The Liberal labour-based approach à la Ricardo and Smith had to fall into oblivion if the consistency of mainstream political economy were to be maintained. This was undoubtedly politically motivated, insofar as the exploitation and alienation within the framework of production became more than clear with Marx's discovery of surplus value, an appropriation of exchange value.
The exchange value represents the ‘quantitative worth’ of one commodity and is determined by the homogeneous human labour embodied in it, as needed by the buyers.  Marx showed that a commodity is something twofold: one entity having not only exchange-value but also use-value.
The latter simply reflects a market abstract evaluation allowed by production; wherein use-values are created. In fact, a commodity must, first of all, be needed and demanded to be exchanged at a certain monetary price or to be exchanged with other commodities. Strictly speaking, the exchange value does not always correspond to the commodity’s price, though the price may coincide with the exchange value. In fact, exchange value is not necessarily expressed in monetary terms, in the form of price. Even in Capitalism commodities may be traded in exchange for other commodities at a definite exchange value — corresponding to the quantity of human labour embodied in them, like in the case of capitalist countertrade (exchanging goods and services for other goods and services).
The natural matter acquired for free and used up for the production of one commodity does not give value to the commodity, insofar as no human labour is embodied in nature and no human labour concerned needs to be remunerated.
However, this does not mean that certain objects in nature don’t have use-value, that is, that value which satisfies human needs.
In fact, the source of all use-values in society is not human labour, as Lassalle (an old influential communist) wrongly thought, but also "nature".
Human labour in the realm of exchange is regarded as homogenous insofar as, in commodity production, commodities are qualitatively equated. 
In fact, Capitalism reduced personal qualitative and quantitative labour to simple (quantitative) labour, that is, repetitive and alienating daily performances. Simple labour has become central due to the subordination of the labourer to machinery and the extreme division of labour. Using few words, in Capitalism “time is everything and man is nothing”, Marx would say.
Personal quality cannot be taken into consideration insofar as commodity production made human labour monotonous and, in general, deprived with any subjective value.
The sudden “change” in Bourgeois Economics started taking shape when Marx discovered the concept of surplus value; whereby that the owner appropriates quality-less (homogeneous) abstract labour with the realisation of one commodity's exchange value in the market.
The Capitalist — in employing the workers through a Capitalist market, where demand and supply of workers meet at an oscillating equilibrium point — buys the workers’ ability to work, namely, their labour power. The value of labour-power is that which is necessary to the maintenance of the basic needs  of a worker, the necessary condition on the basis of which s/he will work. A Capitalist would take more money as compared to the quantity of money advanced by her/him at the beginning of the production process, every time the sale of one of her/his commodity is realised. 
money —> commodity —> (money + additional money).
Since money bears a determined quantitative worth expressed in labour terms; money cannot create money, as the old Mercantilist school used to think.
The source of surplus — insofar as dead and living labour are the only real inputs of production — must necessarily come from an attack on labour on the part of the Capitalist, who owns constant capital (machinery, tools etc.) and the workers’ ability to work.
This value appropriated by the Capitalist— the surplus value — is determined by the difference between the value of labour (the labour embodied in the commodity) and the value of labour-power (the labour necessary for the survival of one worker, his/her reproduction).
In monetary terms, the price of a chair (let’s keep in mind that we are assuming no personal quality involved in production) would not be altered. One consumer interested in buying a chair doesn’t care if the artisan takes many more hours as compared to the industrial worker; his/her demand is therefore not altered.
If the demand for chair is unchanged, the price will be the same; with the only difference that the artisan has taken much more time as compared to the industrial worker, with all the relative economic and social disadvantages, to realise his commodity on the market. More of his labour time will be embodied in the chair, yet this does not increase the price of the commodity in which his/her labour is embodied. It goes without saying that the concept of socially necessary labour time takes into consideration the technological and scientific development of one society and all its human negative and positive consequences on the workers.
The market price expresses the average amount of social labour necessary; while the natural price merely reflects the exchange value of one commodity as given by the balance between supply and demand of commodities embodying socially necessary labour.
Assuming supply and demand to balance each other, the market prices of commodities will be equal to their natural prices, their respective exchange values.
Individual quality, unlike in previous modes of production where such an abstraction is not made (see in the case of primitive barter e.g.), has no more relevance in Capitalism.
The owner of the means of production in Capitalism — a non-worker — without adding a minimum amount of social use-value would exploit the worker — the only producer of social use-values — whose homogeneous abstract labour is available on the market; determining the magnitude of value.
Needless to say, the owner of the means of production (the boss) is part of the “surplus-appropriating class”, which is often called bourgeoisie. The worker — who suffers a labour theft from the boss, as previously discussed — is part of the proletarian class: a class that is forced to sell itself as wage-labour on the capitalist labour market; in order to survive.
"Bourgeoisie" and "Proletariat" are certainly reductive terms.
By no accident, Marx with the former refers to "high bourgeoisie" whilst with petty bourgeoisie he refers to all those societal members who — in broad terms — are neither pure "wage-labourers" nor pure "capitalists", though appropriate a surplus value from labourers, as the shopkeeper does, for instance.
However, the shopkeeper as a capitalist and a worker — assisting his/her own employees — partly produces use-value.
It is merely used up for the individual consumption of the petty bourgeois concerned.
The fact that many of these labourers are not enough conscientised on the matter and don’t take revolutionary action against Capital is a separate question. While the political problem of coscientisation is not topical to our economic analyses and won’t be discussed any further, the class-related topic will be analysed later — in detailed terms — by examining “the social character of productive and unproductive labour”.
Such school does not see the ownership of Capital as an historical contradiction, which uses up all its power to drive down wages and exposes both owners and wage-labourers to a never-ending destructive competition, which is especially destructive for the workers.
First of all, we must differentiate between “owner” — a non-worker who earns millions by virtue of owning (or having inherited ownership)— and the “supervisor”, whose supervising may be regarded as mental labour.
Marx, by mocking the figure of a capitalist “imploring for mercy”, outlines the difference:
Have I myself not worked? Have I not performed the labour of superintendence and of overlooking the spinner? And does not this labour, too, create value?"
His overlooker and his manager try to hide their smiles.
Whether in Communism the role of the supervisor is going to fade away or not is actually not relevant to our discussion.
I would argue that the growing development of productive forces and the social character of Communism would probably do away with such an historical figure, unless contradictions arise in a way they did in the USSR. Yet, this needs further investigation.
Marx describes the workers’ precarious situation in a memorable fictional dialogue between the two 'human opposites' of Capitalism.
As a reply to the worker, the Capitalist points out that without the “role of the boss” no constant capital would be provided in production; implying that a relative profit therefore needs to be there as a “fair” remuneration for the boss (of course, at the detriment of wages).
We should remark that the moral character of the above-mentioned dialogue is still relevant today, insofar as ownership in itself' — leaving aside its non-human consequences — is still regarded as a 'value' by Bourgeois economics.
These queer economists started focusing merely on the demand side of commodity production.
Any evaluation on Labour — and with it its alienation and exploitation— fell into the oblivion in bourgeois textbooks. Bourgeois economists struggled a lot in intellectual terms to cover up the economic inconsistency of Ricardian Economists who ended up pointing out the centrality of labour in the value determination and who — unbeknown to them — at the same unmasked the immoral raison d'etre of Capitalism; which is based on the appropriation of unpaid labour by the boss!
As we may notice from the above-cited words, Marx — who, in broad terms, is neither a modernist nor a postmodernist but a dialectical materialist — DOES have an objective understanding of human nature, though, as he himself recognises, human nature is "shaped", modified, by the dynamics of a mode of production. What I personally argue is that an objective conception of human nature may be based on the objective categories of individual needs that all human beings share, irrespective of religions, beliefs, gender, systemic hindrances etc.
This epistemological approach based on "human needs" appears quite neglected by the Postmodern advocate of "multi-truths". In fact, there is only one method, one "truth", through which human and systemic contradictions — and with them all the anti-human consequences — are abolished; that is to say, Marxist thought and praxis.
The "multi-philosophical" post-modern approach starts faltering whenever we raise the question of "needs realisation". What I argue is that a moral theory of truth can be only a materialist one that sees the individual drive towards the realisation of his/her needs, first of all, as true, as observable and then sees the aim of realising people's needs as a moral necessity, insofar as the human beings are by nature all (true) social beings, not isolated self-sustaining animals. Hence a moral theory of truth that is not genuine, that is to say, a moral theory of truth that doesn't take into consideration the genuine personal drive towards the maximum qualitative and quantitative realisation of one's needs (all, including the social ones), is not a genuine materialist one, but an idealist one. Hence it is a false theory of moral truth.
Communism, with his lack of contradictions, aims at providing the economic and political bases for the achievement of the realisation of natural human needs, the entirety of people's needs, through the provision of socially necessary use-values, and therefore at implicitly validating a pro-genuineness theory of truth.
They see the ruling mode of production — namely, Capitalism — as something eternal, value-free, something dropped from the sky as a 'gift' and as 'the best of all possible worlds', not as an historical and transitory produce; like the plant Engels was talking about in his scientific example on the Dialectics of Nature; the very same plant which would give rise to an entity whose resemblance would be that of an “improved” original form.
In fact, the common Bourgeois is afraid of Communism because he rightly fears his methods of economic immoral appropriation — namely rent, interest and/or profit — are going to end soon with the abolition of Capital and Wage-Labour; and therefore the rise of Communism.
In doing so, s/he fears his (bourgeois) individuality is going to end since exploitation — according to this historically “modified” queer individual —is not an anti-human element but an element composing his true 'individuality'. As Marx suggests, such a Bourgeois would regard himself as an individual, only insofar as he's a Bourgeois. Such an individual would not regard himself as a social being.
His words on the effect of the introduction of machinery on the employment of workers are a clear testimony of this insightful, though limited, “consciousness”.
The great merit of Ricardo, according to Marx, has been of perceiving the connection between the quantitative worth of commodities (their exchange value) and the total labour-time necessary for their production.
For Ricardo, profit is regarded as a uniform rate, which is proportional to the size of the capital advanced (and is still considered as a 'legitimate' deduction from the commodity’s monetary realisation). However, how can Ricardo attempt to analyse the effects of a uniform rate of profit on prices, asks Marx, when nowhere he attempts to define what determines the level of this (uniform, according to Ricardo) rate of profit? 
Leaving aside an analysis of his inconsistencies for the sake of clarity, it is important to point out that modern bourgeois economics hasn’t even reached the witty conclusions of Mr Ricardo. Modern economics can’t even see ‘antithetical interests’ in Capitalism. By not grasping the relevance of the concept of opposite/contradiction, as intended by Engels’ concept of Dialectics — it even ends up neglecting its own dynamics.
Human labour is regarded as central, and the process of production is considered as a whole. Bourgeois economics, after receiving the intellectual blow from Marx’s LTV, started working on economic theories which radically shifted from Marx’s, Smith's and Ricardo's labour-based economic notions.
As previously discussed, the very notion of “labour” in general started appearing quite uncomfortable within the framework of the Liberal thought, which legitimises profit. By no accident, the neoclassical school decided to sway the attention from production to exchange through its pure price theory, at the same time hiding the attention from labour exploitation in the process of commodity production.
In fact, by focusing the attention exclusively on prices, neoclassical economics stopped inquiring the very nature of profit, as labour ceased to be the central object of economic inquiry.
Prices, according to the neoclassical economists, are determined by buyers’ utility evaluations, as objectified by the demand and supply of goods. They are explained by the scarcity of certain goods relative to the demand for them 
The marginal utility of a buyer— that is to say, the quantity of buyer’s utility gained (or lost) with an increase in consumption of one commodity unit— became central to the economic analyses of Bourgeois economics.
With the marginal utility theory, we don’t find any distinction between use-value and exchange value anymore.
Marxist economist Paul Mattick — who assiduously studies Neoclassical economics, as well as Keynesian economics — says on the matter:
The subjective value theory was discredited, first, by a theoretical refinement so excessive that it lost any visible connection with reality, and second, by the frank renunciation of the attempt to explain price by value. Joseph A. Schumpeter may be mentioned in connection with the first of these endeavours.
From the standpoint of the Austrian School, from which he came, the value of final products, or consumer goods, depends on their marginal utility for the consumer, while the marginal utility of intermediate products, such raw materials and machinery is derived by a process of imputation from the marginal utilities of the final goods.
Nassau W. Senior showed more ‘restraint’ and justified profit by regarding as a (millionaire) “compensation for the sacrifice of the Capitalist’s abstention from consumption”; a sacrifice undergone in favour of Capital investment (undoubtedly not requested by anyone except the Bourgeoisie!).
We shall return on the matter of “productivity” later, in more detailed terms.
And the prison is called “subjective theory of value”.
During the second half of the XIX century on, the first most prominent subjective theories of value were formulated.
Liberal economics started asserting that to give value to one commodity was sufficient to crave it; as if by craving an electric guitar, it would materialise itself, ready to be played! 
On the other hand, Desire alone is not sufficient too.
In realising the commodity price in the market, the buyer realises his/her own need and therefore the ontological character of the commodity use-value; insofar as the commodities are socially recognised incarnations of homogenous human labour. 
By doing so the buyer indirectly asserts the use-values as values generated by labour, insofar as labour is an objective production process, it exists in the Real, and its supply allowed the existence of social exchange along with consumers' demand in the goods market. Yet the buyer is not necessarily aware of this implicit realisation, in making an exchange abstraction. 
These liberal comedy persona — far less frank than neoliberals explicitly enjoying commodity production — merely attempt to bribe the workers with wage benefits whilst urging them to go back working during every labour attempt of Capital overthrow, powered by their “Red” rhetoric of equality, freedom, democracy and justice.
For Marx, even commercial and immaterial workers (namely, those who contributes with mental labour) are regarded as wage-labourers, as long as they produce a surplus value for their boss.
Though the term “labourer” or “worker” — widely used by communists, trade unions, social democrats etc. — may suggest “industrial worker” or “peasant”, it is used, at least by Marx, to refer to the wage-labourer; whose ability to work (labour-power) is sold at a wage determined by demand and supply of labour in the labour market.
Marx says on the matter:
A singer who sells her song for her own account is an unproductive labourer. But the same singer commissioned by an entrepreneur to sing in order to make money for him is a productive labourer; for she produces capital.
Marx makes it clear that the materiality of the labour concerned by no means alters the entire issue. Service sector workers, for instance, suffer surplus appropriation just like industrial workers, irrespective of the fact the ‘source’ of value comes from real production of use-values (whether these satisfies ‘the stomach’ or ‘the mind’). Both material and immaterial workers may suffer surplus appropriation. We shouldn't fall in the narrow-minded credo whereby all those commodities and services, whose utility is far from the 'basic needs', are unproductive.
These are his words on the matter, which I will cite at length:
Production activity uses up wealth to create new wealth (i.e., to achieve a production outcome). Personal consumption uses up wealth to maintain and reproduce the individual (a nonproduction outcome). In like manner, military, police, administrative, and trading activities use up wealth in the pursuit of protection, distribution, and administration (also nonproduction outcomes). The issue is not one of necessity, because all these activities are necessary, in some form or the other, for social reproduction (Beckerman 1968, pp. 27-8). Rather, the issue concerns the nature of the outcome; protection, distribution, and administration are really forms of social consumption, not production.
It should be emphasized that the distinction being made is between production and nonproduction activities, not between goods and services. We shall see that a substantial portion of service activities (transportation, lodging, entertainment, repairs, etc.) will be classified under production, whereas others (wholesale/retail, financial services, legal services, advertising, military, civil service, etc.) will be classified as nonproduction activities.
Private distribution e.g. is necessary only to the Capitalist and does not represent production; it is something, which is necessary for the boss' personal consumption. Says Mr Shaikh on private distribution:
Transportation from the orange grove to the consumption region is therefore productive transportation, a completion of the process of the creation of an object of consumption - that is, a completion of the process of production. It is internal to the process of production. It is important to understand that not all transportation constitutes production activity. Some part of commodity transport may be internal to the distribution process itself. Suppose our oranges are produced in California to be sold in New York, but are stored in New Jersey because of cheaper warehouse facilities. As already noted, the transport from California to New York is the productive leg of the journey, because it changes the objective useful properties of the orange. The loop through New Jersey has no (positive) effect on the useful properties of the orange as an object of consumption,5 but it does improve those properties which affect the orange as an object of distribution. As such, this loop is internal to the distribution system. It therefore constitutes distributive transport of commodities, a nonproduction activity.
[Ibid. page 23-24]
Shaikh's analysis is definitely in line with Marx's considerations on production (e.g. goods/services, transportation), nonproduction (e.g. capitalist consumption, police, fire department et cetera) and circulation of use-values (e.g. trade).
Further, Shaikh differentiates between primary sector and secondary sector:
Sectors (such as production and wholesale /retail trade), which are directly involved in the production and domestic realization of the total commodity product, will be called primary sectors. Those (such as finance, land rental and sales, and general government) involved in the subsequent recirculation of the value and money streams originating in the primary sectors will be called secondary sectors.
[Ibid. page 39]
Transportation labour e.g. is also by no means 'individually necessary' or, to use Marx's term in Capital volume III, for private service. Workers in the transportation sector e.g. do add value to the commodity and are not to be categorised as workers within the framework of trade (which will be analysed later in a more detailed way).
I shall cite at length Marx’s very important lines about transportation regarded as productive activity and as an activity which is different from trade:
If the sailor, the carter etc. require only half a year of labour time to live a full year (if this is generally the proportion of labour necessary for subsistence), then the capitalist employs him for a whole year and pays him a half. By adding a whole years labour time to the value of the transported products, but paying only ", he gains a surplus value of 100% on necessary labour. The case is entirely the same as indirect production, and the original surplus value of the transported product can come about only because the workers are not paid for a part of the transportation time, because it is surplus time, time over and above the labour necessary for them to live. That an individual product might be made so much more expensive, owing to the transport costs, that it could not be sold -- on account of the disproportion between the value of the product and its surplus value as a transported product, a quality which becomes extinguished in it as soon as it has arrived at its destination-does not affect the matter. […]
Marx’s LTV did not provide an equilibrium model in production and exchange of commodities simply for the fact that a real stable equilibrium will never be achieved in Capitalism. In a purely dialectical spirit, Marx understood that the contradictions inherent to Capitalism — fed by the time factor — may produce crises, unemployment, externalities etc. etc., which alter the system relations, by blows of value oscillations.
The destruction of goods, which are socially needed, is an exclusive parasitic outcome of Capitalism, as Marx remarks:
Marx, as previously discussed, differentiates between unproductive and productive labour; the former regarded as 'a non-creator of surplus value for the sake of Capital', the latter as 'creator of surplus-value'.
The former does not create Capital, the latter does.
Unproductive doesn't necessarily mean individually necessary or for private service. What is unproductive can be both socially necessary and individually necessary/for private service.
The same goes for productive labour.
What I mean by individually necessary labour is labour which wouldn't be there if production was to be socialised and the contradictions of Capital and Wage-labour were to give rise to some dialectically higher mode of production, like Socialism or Communism. Individually necessary labour is labour employed for private service; producing a use-value, which is realised only thanks to the boss’ appropriation of surplus value.
For instance, capitalistic luxury consumption requires this form of labour.
However, these are only moral evaluations made on the basis of the scientific character of Marx’s theory of value.
I will cite at length his noteworthy considerations on the matter:
Since the merchant, as a mere agent of circulation, produces neither value nor surplus-value (for the additional value which he adds to the commodities through his expenses resolves itself into an addition of previously existing values, although the question here poses itself, how he preserves this value of his constant capital?) it follows that the mercantile workers employed by him in these same functions cannot directly create surplus-value for him
[…] The relation of merchant's capital to surplus-value is different from that of industrial capital. The latter produces surplus-value by directly appropriating the unpaid labour of others. The former appropriates a portion of this surplus-value by having this portion transferred from industrial capital to itself. It is only through its function of realising values that merchant's capital acts as capital in the process of reproduction, and hence draws on the surplus-value produced by the total capital. The mass of the individual merchant's proﬁts depends on the mass of capital that he can apply in this process, and he can apply so much more of it in buying and selling, the more the unpaid labour of his clerks. The very function, by virtue of which the merchant ' s money becomes capital, is largely done through his employees. The unpaid labour of these clerks, while it does not create surplus-value, enables him to appropriate surplus-value, which, in effect, amounts to the same thing with respect to his capital. It is, therefore, a source of proﬁt for him. Otherwise commerce could never be conducted on a large scale, capitalistically. 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.
Marx may be probably 'misinterpreted' when in the above-mentioned phrase he states “the unpaid labour of these clerks, while it does not create surplus-value, enables him [the merchant] to appropriate surplus-value”. Insofar as Marx has always considered production in social terms, as a whole, his consideration is fully dialectical as it analyses the process of Capital formation, starting from the very genesis.
With the above-mentioned remark, Marx has not suddenly “downgraded” to one physiocrat in terms of economic consciousness, to a queer economist regarding all the agricultural labour — whose realisation allows the rest of social production — as the only source of value. Commercial labour for Marx circulates use-value but at the same the surplus value stemming from it is a share drawing on pre-existing surplus value; it would never materialise itself without industrial production in general.
The wealthier the industrial production is, the greater the trade surplus. 
For Neoclassical economics every marketable activity is regarded as productive and is erroneously to be accounted in the growth of wealth of society. Hence, every time pre-existing circulating value appears in a marketable activity, say in the form of rent, royalties etc. it is counted as newly produced value, adding up to the nation’s wealth! Hence, according to the IO (input-output) liberal accounts, a nation with innumerable parasitic economic activities would falsely appear as a prosperous nation, at least in figurative terms.
In this regard, Mr Shaikh analytically proves that:
Pp = profit in the production sector
Pt= trading margin
Wt = wages in trade/circulation of use-values
Mt= constant capital in trade/circulation of use-values
Wp=wages in production sector
The image is analytically clear.
According to the Input-Output standards, the profit-wage ratio is calculated with no distinction between wages in the production sector and wages in trade. It follows that an amount of use-value produced in the production sector may be counted again as new wealth in the nonproduction and circulation sector!
“Of these 5 lbs. of twist, say three-ﬁfths represent constant capital. They belong to you. Two-ﬁfths, that is, 2 lbs., represent my newly-added labour. Therefore you have to pay me the 2 lbs. So pay me the value of 2 lbs.” And thereby he would pocket not only the wages but also the proﬁt, in short, a sum of money equal to the quantity of labour newly added by him and materialised in the form of the 2 lbs.” “But,” says the capitalist, “have I not advanced the constant capital?”
[Karl Marx — Theories of Surplus Value VOL I, On the Circulation of Money between Capitalist and
[Henrik Grossman: Marx, classical political economy and problems of dynamics part I]
Let us call this product or the produced commodity-capital, C, whose value, or price of production (since both are identical for the totality of commodities) = 1,080, and the rate of proﬁt for the total social capital of 900 = 20%. These 20% are, according to our earlier analyses, the average rate of proﬁt, since the surplus-value is not calculated here on this or that capital of any particular composition, but on the total industrial capital of average composition. Thus, C = 1,080, and the rate of proﬁt = 20%
Let us now assume, however, that aside from these £900 of industrial capital, there are still £100 of merchant's capital, which shares in the proﬁt pro rata to its magnitude just as the former. According to our assumption, it is 1/10 of the total capital of 1,000. Therefore, it participates to the extent of 1/10 in the total surplus-value of 180, and thus secures a proﬁt of 18%. Actually, then, the proﬁt to be distributed among the other 1/10 of the total capital is only = 162, or on the capital of 900 likewise = 18%. Hence, the price at which C is sold by the owners of the industrial capital of 900 to the merchants = 720c + 180v + 162s = 1,062. If the dealer then adds the average proﬁt of 18% to his capital of 100, he sells the commodities at 1,062 + 18 = 1,080, i.e.,
[Karl Marx — Ibid. Ch.17]