Contradictions Inherent In The Law
Marx sets out the basis of the Law in Chapter 13 of Capital III, and in doing so he describes the contradictions in the process that forms that basis. In the next chapter he sets out further contradictions in the law, which act as countervailing forces, and in Chapter 15, he describes how the resolution of these various contradictions lead to crises and other effects.
In setting out the basic processes that create a tendency for the rate of profit to fall, which simultaneously causes the mass of profit to rise, Marx outlined how these very same processes also result in a tendency for the rate of profit to rise, and for the necessity of the annual rate of profit to rise via a release of capital. So, the basis of the tendency for the rate of profit to fall is that the total value of constant capital rises relative to the total value of variable capital. But, the means by which this comes about is technological change. New, more efficient means of production raise the productivity of labour, so that a given quantity of labour can process a greater quantity of material.
However, this very same process also creates a tendency for the rate of profit to rise. Firstly, it means that a smaller quantity of fixed capital is required relative to the quantity of material processed, because one new machine replaces several older machines. Secondly, this same process also reduces the value of that fixed capital, which, because it must always be present for production to take place, must always be included in the advanced capital. The combination of a relative fall in the quantity of fixed capital, and an absolute fall in its value, is a powerful factor, therefore, in creating a tendency for the rate of profit to rise, which counteracts its tendency to fall. Thirdly, this same rise in productivity causes the value of the circulating constant capital to fall, though in respect to material this frequently occurs in steps, only after new production has been established. It is frequently only as an average market price, over many years, that this can be observed, as market prices remain high during periods of under supply, and then fall to below prices of production, during periods of over supply.
So, although the quantity of material processed increases, the total value of that material may rise by only a small amount, remain the same, or even fall as a result of the fall in the value of the material itself. Moreover, changes in technology and technique may also result in the material itself being used more efficiently, so that even a relatively smaller quantity of it is consumed. For example, improvements in steam engine technology continually resulted in more power being produced with smaller amounts of coal consumed to produce it. The same thing is seen today. Global GDP has risen by seven times the increase in oil consumption, as technology has improved the way oil is used to produce energy.
A similar thing occurs with the use of other materials, so, for example, Marx details the way waste was reduced, or used in production itself. In addition, existing materials can be replaced by cheaper or more effective alternatives. That is the case with synthetic fibres, for example. But, a significant example is in relation to electronic goods. Originally, these depended on expensive electric valves that themselves required a lot of material to produce. But, these were replaced by much cheaper and more effective transistors, which required very little in the way of material for their production. These in turn were replaced by printed circuit boards that required even less in terms of material, and increased efficiency by massive amounts. In turn, the introduction of microprocessors has improved efficiency by qualitatively larger magnitudes, with the use of even less material.
These huge reductions in the quantity of materials used, in the relative quantity of fixed capital, and in the value both of the fixed and circulating constant capital, thereby create a powerful tendency for the rate of profit to rise.
Fifthly, the same processes also result in significant falls in the value of wage goods, which causes the value of labour-power to fall and relative surplus value to rise. The increase in the rate of surplus value, therefore, also creates a tendency for the rate of profit to rise.
Sixthly, the increase in productivity reduces the production time and circulation time of capital so that the rate of turnover rises, thereby causing the annual rate of profit to rise.
Seventhly, these same processes result in the creation of new industries, where the organic composition of capital is lower and of profit is higher.
Finally, these same processes bring about qualitative changes in labour itself.
“There must be some counteracting influences at work, which cross and annul the effect of the general law, and which give it merely the characteristic of a tendency, for which reason we have referred to the fall of the general rate of profit as a tendency to fall.” (p 232)
I will examine each of these contradictions in turn.
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