Monday, 2 June 2014

The Law Of The Tendency For The Rate of Profit To Fall - Part 13

The Fall In The Value Of The Circulating Constant Capital (3)

The assumption of a rising organic composition of capital itself rests on several other assumptions. It assumes that although the value of the elements of the circulating constant capital will fall, the technical composition of capital, i.e. the quantity of material processed by a given quantity of living labour, will rise by a bigger proportion so that although the organic composition will not rise as much as the technical composition, it will still rise. But, for the reasons Marx sets out, this is only an assumption, which, at best, can apply to any individual capital or sphere, not to the total social capital. In other words, precisely because the composition of the total social capital is constantly changing as new industries arise, it is impossible to claim that the organic composition of the total social capital must rise, because these new industries not only might have low organic compositions, but for the reasons Marx sets out, they necessarily will have low organic compositions, and the very high rates of profit that goes with it.

“These new lines start out predominantly with living labour, and by degrees pass through the same evolution as the other lines of production. In either case the variable capital makes up a considerable portion of the total capital and wages are below the average, so that both the rate and mass of surplus-value in these lines of production are unusually high.” (loc.cit)

The following table indicates the effect of a changing composition of the total social capital as witnessed by most developed economies. The percentage of the economy accounted for by each of the three sectors, Agriculture, Industry and Services, is based on actual data. The figures for the composition of capital in each are estimates, merely for illustrative purposes.

Effect Of Changes Of Social Capital On The Average Rate of Profit


Percentage of Social CapitalConstant CapitalVariable CapitalSurplus ValueRate Of ProfitAverage Rate Of Profit
















What it shows is that, even as the organic composition of capital in each sector rises, the fact that Services, with a lower than average organic composition, goes from being a minor part of the total social capital, to being the main component thereby acts to reduce the organic composition of the whole. The figures are intended to be only illustrative of this point, they do not pretend to represent actual organic compositions or rates of profit. By the same token, the calculated rate of profit does not take into consideration any of the other points so far addressed, particularly the effect of a rising rate of turnover of capital.

In fact, a look at the total social capital today indicates that it is not just in relation to services where this high organic composition of capital exists for new industries. It applies to whole swathes of the “new economy”. On the one hand, there are those industries such as telecommunications, where large amounts of fixed capital are employed, and where, as indicated in Part 6, this means that the rate of turnover of capital is exceedingly high, bringing with it, as indicated there, not a fall but a rise in the rate of profit, as a result of the rise in the organic composition of capital. On the other hand, there are those industries, where certain elements of fixed capital may be relatively considerable, but where the actual organic composition of capital is low for the reason Marx sets out, i.e. the variable capital component is high, relative to the circulating constant capital. This is true, for example, in relation to things such as software development, computer games production and so on.

Moreover, although the force behind the determination of the rate of profit is taken as the organic composition c/v, in reality, this is wrong. The real measure should be the relation of c to v+s, i.e. the relation of the constant capital to the new value created by the living labour, and within that the relation of s to v. In his comments about the “new lines”, Marx talks about low wages, but today the opposite is true. The low organic composition in a very high tech industry arises not because large numbers of workers are employed, on low wages, but because the labour employed is highly complex. In other words, the market places a very high value on the product of this labour. It is not high wages of software designers, and computer games producers that causes the price of such products to be high, it is the fact that the market places a high value on the product of their labour, which enables them to be paid high wages. In fact, it is that very fact that has pushed up wages for such workers to such an extent that the technology firms that employ them have been revealed to have engaged in cartel like behaviour to prevent wages being bid up via competition, as each company has entered into agreements with its competitors not to poach workers.

As Marx points out in Capital I, it does not matter whether the variable capital of £1,000 represents the labour-power of 100 workers each paid £10, or whether it represents the labour-power of just 1 worker, paid £1,000, because their labour is highly complex. If the rate of surplus value is constant, at 100%, then in either case the surplus value produced will be £1,000. All that is signified is that the complex labour of the single worker is the equivalent of 100 times the labour of each of the 100 workers. In other words, the nature of these new industries may be that they employ many fewer workers than older industries, for any quantity of constant capital, and yet these smaller number of workers may represent a larger quantity of abstract labour-time, because their labour is complex. Similarly, they may produce a much larger quantity of surplus value than was produced by a larger number of workers whose labour was only simple. In fact, its for this reason that these companies do enjoy very high profits. Its also why small countries, with small populations, have been able to generate high levels of national income, where they have concentrated on developing a highly educated, highly skilled workforce that is employed in such industries. Again this is a reflection of Marx's comments earlier from the Grundrisse, in relation to the “Civilising Mission of Capital”.

Moreover, as indicated by the actions of the technology companies, the fact that their workers are paid very high salaries, does not mean that they might not be being exploited even more than workers being paid very low wages. A worker whose labour creates £10,000 of new value, and who is paid £4,000 in wages (60%), is more highly exploited than a worker whose labour produces £100 in new value, and is paid just £50 in wages (50%).

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