Friday, 23 May 2014

The Law of The Tendency For The Rate of Profit To Fall - Part 10

A Rise In The Mass Of Capital and Profit (3)

The increase in the mass of capital is important not just because it means also a growing mass of variable capital, and therefore, of surplus value. It is important, because, as Marx points out, beyond the initial development of capitalism, based on privately owned, individual capitals, it is the mass of profit that is determinant of accumulation, not the rate of profit. That is so for several reasons.

In Capital I, Marx described the historical process of capital accumulation. First, the direct peasant and artisan producers are expropriated by individual capitalists. Second, the very process of capitalist competition brings about a concentration and centralisation of capital. This establishes a relatively few big capitalists in a position where they and their families exercise a monopoly of private capital, as even the smaller capitalists begin to be swallowed up. However, as the process of accumulation and concentration and centralisation of capital proceeds, even these very big, individual, private capitalists are not big enough, and cannot mobilise sufficient capital. The monopoly of private capital becomes a fetter on further progress. In order for capital to proceed further, this fetter must be “burst asunder”. It is, in the shape of socialised capital, which takes the form initially of the joint stock company, and the co-operative, in which large numbers of individuals, including workers and the middle class, pool their individual capitals, and utilise credit to establish mammoth collective capitals. Now, this socialised capital begins to swallow up the big private capitals themselves. The expropriators are themselves expropriated. This process, of the development of socialised capital, itself then proceeds to establish the limited liability company, the multinational corporation, the trusts, and even the state capitalist enterprise.

This development is significant for several reasons. Firstly, as stated above, by the time capital reaches these mammoth proportions, the increase in the mass of profit has long since become more important than changes in the rate of profit, because any fall in the rate of profit, for these companies, is more than compensated by the rise in its mass of profits. The stage has been reached that Marx described when he stated,

“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.” (Chapter 15, p 259) 

And, as he says, for these giant socialised forms of capital, that is precisely the case. In fact, for these huge corporations, not only does their profit not enter the process of establishing the average rate of profit, but in practice, the category of “profit”, within them, itself disappears, as Marx sets out later in Capital III, as the social function of the individual capitalist is replaced by that of the professional manager, paid wages, whilst the shareholding capitalist, the coupon clipper, receives not profit but interest, on their money-capital, in the form of dividends.

“But in the sense that these capitals, although invested in large productive enterprises, yield only large or small amounts of interest, so-called dividends, after all costs have been deducted. In railways, for instance. These do not therefore go into levelling the general rate of profit, because they yield a lower than average rate of profit. If they did enter into it, the general rate of profit would fall much lower. Theoretically, they may be included in the calculation, and the result would then be a lower rate of profit than the seemingly existing rate, which is decisive for the capitalists; it would be lower, because the constant capital particularly in these enterprises is largest in its relation to the variable capital.” (Capital III, Chapter 14, p 240)

The mass of capital is significant, for these mammoth capitals, not just because, as Marx points out, the potential for accumulation, out of a low rate of profit, on a big capital, is still greater than that from a high rate of profit on a small capital, but because this large mass of profit is decisive, for the bigger capital, in the battle of competition.

“We have shown how the same causes that bring about a tendency for the general rate of profit to fall necessitate an accelerated accumulation of capital and, consequently, an increase in the absolute magnitude, or total mass, of the surplus-labour (surplus-value, profit) appropriated by it. Just as everything appears reversed in competition, and thus in the consciousness of the agents of competition, so also this law, this inner and necessary connection between two seeming contradictions. It is evident that within the proportions indicated above a capitalist disposing of a large capital will receive a larger mass of profit than a small capitalist making seemingly high profits.” (Capital III, Chapter 13, p 224-5) 

“Even a cursory examination of competition shows, furthermore, that under certain circumstances, when the greater capitalist wishes to make room for himself on the market, and to crowd out the smaller ones, as happens in times of crises, he makes practical use of this, i.e., he deliberately lowers his rate of profit in order to drive the smaller ones to the wall.” (ibid p 225)

But, the profits of these mammoth socialised capitals do not participate in the process of formation of the average rate of profit for another reason. That is because their huge size means that barriers, both to entry and to exit, of these spheres are established. No one can simply set up as a mass car producer, for example, because the capital required to do so is so large that only some form of socialised capital is capable of mobilising the minimum level of resources required. But, similarly, such a capital, having invested billions of dollars, in this sphere of production, cannot simply withdraw it, because the rate of profit has fallen below the average. In other words, the productive-capital, involved in these spheres, cannot simply flow to where the highest profits are to be made. Later, I will examine Marx's comments, in relation to this expansion of stock capital, as a countervailing force to the falling rate of profit, and how later developments have resolved the issue of the immobility of this productive-capital, and developed the means for providing an average rate of profit.

Finally, I want to demonstrate why it is that the introduction of new machines leads to accumulation of capital, rather than to these machines simply replacing the existing machines and labour-power.

If we take the situation described earlier, where a machine with 36 spindles could replace 9 machines with 4 spindles, it was demonstrated that, as well as the 9 machines, this would mean also that the workers that operated them could also thereby be replaced. In other words, the wages of 8 workers, equal to £8,000 could be saved, alongside £8,000 in machines, if just one new machine, and worker, were employed, to produce the same output as 9 machines and 9 workers.

But, consider the following. If the firm has to produce 100,000 units, to meet the requirements of its working period, and achieves this in 9 weeks, with 9 machines and 9 workers, it will achieve the same thing, in the same time, with the 1 machine and worker. In this time, to produce the 100,000 units, it will need, say 10,000 kilos of cotton. Now, suppose, instead, it uses the released capital to replace all of its original 9 machines. It now produces the 100,000 units in just 1 week. In that week, it processes the same 10,000 kilos of cotton, so the capital it advances on materials, for this new shorter working period, is the same as it advanced for the 9 week working period. True, compared with employing 9 workers instead of the 1, its wage bill must be more, but, it now only advances variable capital for 1 week rather than 9 weeks too. The variable capital, needed for 9 workers for 1 week, is no more than for 1 worker for 9 weeks.

In other words, the advantage of using the released capital, to replace all of the machines, rather than simply replacing 9 with 1, and of reducing the workforce, so as to simply produce at the old level, is that the working period, for the capital, is reduced to a ninth of what it was, and consequently, the capital advanced, for this much shorter period, for both variable capital, and circulating constant capital, is no more than was previously advanced for 9 weeks. The difference is that 9 times the quantity of commodities are produced, nine times the amount of surplus value is produced, and the total size of the laid-out capital is also nine times bigger than it was. Because the annual rate of profit is the total surplus value produced for the year, measured against the capital advanced for one turnover period, therefore, both the mass and the rate of profit, must then rise massively.

No comments: