Friday, 25 April 2014

The Law Of The Tendency For The Rate of Profit To Fall - Part 2

The Law Of Falling Profits and Catastrophism

In Part 1, the contrast between Marx's Law of Falling Profits as merely a tendency, as he describes it, was contrasted with the theories of the previous political economists, who believed that the rate of profit must fall, because at some point the mass of profit must fall, in the same way that Malthus had forecast that food production could not keep pace with the increase in population. Marx demonstrates that this is wrong. The rate of profit can fall even as the mass of profit rises. If we have c 1000 + v 1000 + s 1000, then the rate of profit is 1000/2000 = 50%. If the mass of capital rises so that we have c 5000 + v 2000 + s 2000, then the mass of profit has doubled, but now the rate of profit is 2000/7000 = 28.57%.

In fact, Marx demonstrates that, the condition for the rate of profit to fall is not that the mass of profit begins to fall, but only that it falls relative to the laid out capital.  However, the basis upon which that occurs, is that there is a rise in the social productivity of labour. But, this rise in the social productivity of labour is itself predicated upon an increase in the mass of capital employed, including the mass of variable capital. The consequence is, therefore, Marx says, that an inevitable corollary of a falling rate of profit, is a rising mass of advanced capital, and a rising mass of profit.

The prognostications of the catastrophists that, just as diminishing returns in agriculture would cause workers to starve, so diminishing returns to capital would cause a collapse of capitalism, were proven wrong, and had to be proven wrong, Marx says, because a necessary condition for a falling rate of profit is a growing mass of profit, and ultimately it is this growing mass of profit, rather than the rate of profit, which is determinant for capital accumulation, and the expansion of the system.

“The number of labourers employed by capital, hence the absolute mass of the labour set in motion by it, and therefore the absolute mass of surplus-labour absorbed by it, the mass of the surplus-value produced by it, and therefore the absolute mass of the profit produced by it, can, consequently, increase, and increase progressively, in spite of the progressive drop in the rate of profit. And this not only can be so. Aside from temporary fluctuations it must be so, on the basis of capitalist production.” (Capital III, Chapter 13, p 218)

“It therefore follows of itself from the nature of the capitalist process of accumulation, which is but one facet of the capitalist production process, that the increased mass of means of production that is to be converted into capital always finds a correspondingly increased, even excessive, exploitable worker population. As the process of production and accumulation advances therefore, the mass of available and appropriated surplus-labour, and hence the absolute mass of profit appropriated by the social capital, must grow.” (ibid p 218-9)

“It requires no more than a passing remark at this point to indicate that, given a certain labouring population, the mass of surplus-value, hence the absolute mass of profit, must grow if the rate of surplus-value increases, be it through a lengthening or intensification of the working-day, or through a drop in the value of wages due to an increase in the productiveness of labour, and that it must do so in spite of the relative decrease of variable capital in respect to constant. 

The same development of the productiveness of social labour, the same laws which express themselves in a relative decrease of variable as compared to total capital, and in the thereby facilitated accumulation, while this accumulation in its turn becomes a starting-point for the further development of the productiveness and for a further relative decrease of variable capital — this same development manifests itself, aside from temporary fluctuations, in a progressive increase of the total employed labour-power and a progressive increase of the absolute mass of surplus-value, and hence of profit.” (ibid p 219-20)

“Thus, the same development of the social productiveness of labour expresses itself with the progress of capitalist production on the one hand in a tendency of the rate of profit to fall progressively and, on the other, in a progressive growth of the absolute mass of the appropriated surplus-value, or profit; so that on the whole a relative decrease of variable capital and profit is accompanied by an absolute increase of both. This two-fold effect, as we have seen, can express itself only in a growth of the total capital at a pace more rapid than that at which the rate of profit falls.” (ibid p 223)

But, as capital bursts asunder the fetters of the monopoly of private capital that initially characterised it, and instead takes on mammoth proportions in the shape of first the Joint Stock companies, all the way through to the multinational corporation, it is this mass of profit that is decisive, as it compensates any fall in the rate of profit for these huge companies.

“The rate of profit, i.e., the relative increment of capital, is above all important to all new offshoots of capital seeking to find an independent place for themselves. And as soon as formation of capital were to fall into the hands of a few established big capitals, for which the mass of profit compensates for the falling rate of profit, the vital flame of production would be altogether extinguished. It would die out.” (Capital III, Chapter 15, p 259)

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