Monday, 16 June 2014

The Law of The Tendency For The Rate of Profit To Fall - Part 17

Fall In the Value Of The Variable Capital (1)

There are a number of ways in which the value of the variable capital may fall. Some imply a fall in the rate of profit, some imply a rise in the rate of profit, and some imply no change in the rate of profit. The value of the variable capital might fall because fewer workers are employed, or unskilled workers replace skilled workers; it may fall because wages are cut, which may be simply an effect of the condition of supply and demand, or may reflect a reduction in the value of labour-power; it may fall in relative terms because the working day is extended or made more intensive, so it falls relative to the material processed by it.

The basis of the process which brings about the tendency for the rate of profit to fall is that the social productivity of labour continually rises, because new technologies are introduced, such that one machine replaces several older machines and the workers that minded them. On this basis, its clear that the quantity of workers employed, must continually tend to fall relative to the quantity of material processed. However, as described in previous sections, not even this tendency is absolute, because the same technological changes that stand behind the process of a falling rate of profit, also causes both the volume and value of the material processed to fall relatively too. As Marx sets out, and was seen earlier, this relative decline in the number of workers employed, goes along with an absolute increase in the number of workers employed, because the mass of capital rises, including the mass of variable capital. In just the same way, the absolute mass of material processed may rise, and yet its relative quantity and value fall. For example, more oil is consumed absolutely, but less oil is consumed relative to the amount of energy generated, petro-chemicals produced and so on.

If everything else remains the same, this relative reduction in the value of the variable capital, caused by the relative decline in the quantity of labour exploited, must cause the rate of profit to fall. If the ratio of v:c falls, then with a constant rate of surplus value, s', then s:c must also fall, which means that s must also fall relative to c+v. However, from what has already been said, its clear that the process which reduces the ratio of v:c, precludes everything else remaining the same. Firstly, as has been seen, the ratio v:c falls because of technological improvements. That means the quantity of fixed capital employed falls relative to the laid out circulating constant capital. It increases relative to the advanced circulating constant capital, but only because this results from an increase in the rate of turnover of capital. That same increase in the rate of turnover means that rather than the general annual rate of profit falling, it rises, despite the reduction in the variable capital, and surplus value produced during the turnover period, as was demonstrated in Part 5.

But, its also clear that this same rise in the productivity of labour has other contradictory effects that likewise cause the rate of profit itself to rise not fall. Firstly, as seen already, that rise in productivity reduces the value of the fixed capital, and the circulating constant capital. That causes the rate of profit to rise. Whether that effect is sufficient to offset the tendency for the rate of profit to fall resulting from the relative reduction in the value of the variable capital, depends upon the relative strength of each of these contradictory forces. However, the process which creates the tendency for the rate of profit to fall, as a result of the relative fall in the value of the variable capital, is a single force working in that direction, but the same process leads to a series of these forces working in the opposite direction. Even if any one, or several of these was not enough to counteract the downward tendency, its unlikely that all of them combined would not be sufficient to do so. The only reason this is not manifest is because, as Marx points out, these various forces work sometimes side by side, sometimes one after another, sometimes reinforcing each other, sometimes opposing each other.

So, its not just the relative reduction in the quantity of fixed capital, or the fall in its value, nor the fall in the value of the circulating capital, and possibly also of its quantity, nor the effect of the rise in the rate of turnover that acts to raise the rate of profit. The same rise in productivity must also act to reduce the value of labour-power, by cheapening wage goods. Marx, in describing this process, refers to a situation where the rise in productivity does not affect wage goods, but its impossible to see, outside the production of luxury goods, how any such change in productivity does not affect the value of wage goods. If the value of steel is reduced, for example, that affects the value of canned goods, it affects the value of lathes used to produce various engineered commodities whether they be consumer goods, or producer goods. If it is the latter, then these producer goods will also be used to produce consumer goods, or else to produce yet other producer goods required for producing consumer goods.

To the extent that the value of labour-power is reduced, therefore, by this same process, the ratio of s:v rises, so that even as the organic composition of capital rises, the rate of profit may also still rise.

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