Part One — The Transformation of Surplus-Value into Profit and of the Rate of Surplus-Value into the Rate of Profit Chapters 1–7. Cost price and profit, the rate of profit, its relation to the rate of surplus-value, and the effects of turnover, economy, and price change.

Volume III changes the level of analysis. Volumes I and II analysed capital "in general" — the production and circulation of surplus-value in their inner constitution. Volume III follows capital out to the surface of society, into the forms in which it appears to the agents of production themselves and acts through competition: profit, the general rate of profit, interest, rent. The governing thesis of the whole volume is that these surface forms systematically disguise the depths that produced them, so that the origin of surplus-value in unpaid labour becomes ever more thoroughly veiled the closer one gets to the categories of everyday economic consciousness. Part One takes the first step of this descent. It shows how surplus-value assumes the form of profit and how the rate of surplus-value assumes the form of the rate of profit — two transformations that, in one stroke, hide the source of the surplus in the variable capital by referring it instead to the total capital advanced. The cost-price category (k = c + v) obliterates the distinction between constant and variable capital on which the whole theory of exploitation rests; profit (the surplus reckoned against the whole outlay) then appears as an offspring of capital as such rather than of living labour. Chapters 1 through 3 establish the two transformations and the relation between the rates; Chapters 4 through 7 examine how turnover, economies in the use of constant capital, and price fluctuations modify the rate of profit — all of them further loosening the visible tie between profit and its real source.

Marx introduces the cost price, the sum the capitalist actually lays out — constant capital plus variable capital, k = c + v. Because the surplus labour costs the capitalist nothing, the value of the commodity C = c + v + s can be rewritten from his standpoint as k + s, and the surplus, reckoned now against the whole outlay, presents itself as profit. The value-formula becomes the profit-formula, and in the passage the source of the surplus is lost.

Marx fixes the category at the outset: what the commodity costs the capitalist and what its production really costs are two different magnitudes.

When we combine the various portions of commodity value that simply replace the capital value spent in the commodity’s production, under the heading of cost price, we express on the one hand the specific character of capitalist production. The capitalist cost of the commodity is measured by the expenditure of capital, whereas the actual cost of the commodity is measured by the expenditure of labour..

Marx, Capital III, page 118.

And he warns at once that the category, though it explains nothing about the production of value, will nonetheless come to pose as one of its real determinants.

If I know that five-sixths of a commodity value of £600, i.e. £500, is simply an equivalent, a replacement value, for the capital of £500 that has been spent, and that this is therefore just sufficient to buy back, the material elements of this capital, I still neither know how this five-sixths of the commodity’s value which forms its cost price was produced, nor can I explain the origin of the last sixth that forms its surplus-value. Our investigation will show, however, that cost price does none the less, in the economy of capital, present the false semblance of an actual category of value production..

Marx, Capital III, page 119.

Because the surplus appears indifferent to the internal division of the advance, it presents itself as sprung from the capital as a whole — the step by which surplus-value takes on the profit form.

However this might be, the upshot is that the surplus-value springs simultaneously from all parts of the capital applied. The deduction may be substantially abbreviated, as in the clear and simple words of Malthus: ‘The capitalist… expects an equal profit upon all the parts of the capital which he advances.’ As this supposed derivative of the total capital advanced, the surplus-value takes on the transformed form of profit. A sum of value is therefore capital if it is invested in order to produce a profit, or alternatively profit arises because a sum of value is employed as capital..

Marx, Capital III, page 126.

If we call profit p, the formula C = c + v + s = k + s is converted into the formula C = k + p, or commodity value = cost price + profit. Profit, as we are originally faced with it, is thus the same thing as surplus-value, save in a mystified form, though one that necessarily arises from the capitalist mode of production. Because no distinction between constant and variable capital can be recognized in the apparent formation of the cost price, the origin of the change in value that occurs in the course of the production process is shifted from the variable capital to the capital as a whole.

Marx, Capital III, page 127.

The cost price is thus the first veil. It sets a floor beneath which the capitalist cannot sell without losing capital, so he treats it as the commodity's "real inner value"; and because the difference between cost price and value is precisely the surplus-value, a whole band of possible selling prices opens up between them, within which a commodity can be sold below its value and still at a profit. This gap — value minus cost price — is what makes competition's price movements possible, and Marx flags here that the general rate of profit and the prices of production analysed in Part Two will rest on exactly this difference.

Marx spells out how the capitalist’s own standpoint consolidates the illusion, to the point where the surplus seems to arise from the act of sale.

From this standpoint alone, the capitalist is inclined to treat the cost price as the real inner value of the commodity, as it is the price he needs merely to preserve his capital. Added to this, however, is the fact that the cost price of the commodity is the purchase price which the capitalist has himself paid for its production, i.e. the purchase price determined by the production process itself. The excess value or surplus-value realized with the sale of the commodity thus appears to the capitalist as an excess of its sale price over its value, instead of an excess of its value over its cost price, so that the surplus-value concealed in the commodity is not simply realized by its sale, but actually derives from the sale itself..

Marx, Capital III, page 128.