Fall In the Value Of The Variable Capital (2)
Suppose, the quantity of labour-power employed is reduced. It could be that this is because the scale of operation for this capital is itself reduced. In other words, from an initial situation of
c 1000 + v 1000 + s 1000,
the capital is reduced to,
c 500 + v 500 + s 500.
In that case, the variable capital has been reduced by 50%, and the surplus value has been reduced by 50% along with it. The rate of profit is not changed here, because the organic composition of capital has not changed. It was 1:1 initially, and remains 1:1 after the reduction in the size of the advanced capital.
There are other potential ways this could arise in theory. Suppose, the initial situation represents a condition where a number of very skilled workers work with a large quantity of fixed capital in the form of complex tools, to process a relatively small quantity and value of material. The example might be Chippendale's carpentry workshop. But, a new machine is introduced, which replaces all of these tools, and means that the machine can be operated instead by unskilled workers. On this basis, the advanced constant capital value falls because although the same quantity of material is processed, the value of the advanced fixed capital falls by a very large amount. In addition, although perhaps even the same number of workers are employed, these are now unskilled, lower paid workers, so the value of variable-capital falls. Because, these are unskilled workers providing simple rather than complex labour, the quantity of new labour they perform is reduced proportionately, the new value they produce is thereby reduced, and so even though they are lower paid, the rate of surplus value remains the same.
However, in practice this situation would not arise, because, as Marx sets out in Capital I, capitalist enterprises will never introduce such a new machine unless the cost of the machine is less than the paid portion of the labour-time it replaces. In other words, unless it acts to increase profits. This is a significant difference, between capitalist firms and worker-owned co-operatives. The latter always have an incentive to introduce new machines that save labour.
If, the quantity of labour-power employed is then reduced, as a result of some new machine being introduced, it can only be because this new machine acts to increase the amount of profit. Now, it can be that this is the case for the individual firm, because it reduces its costs, whilst the market value of the commodity it produces remains the same, but this continues only so long as other firms do not follow suit. Once other firms adopt this new machine, the market value of the commodity falls, and the consequence is that the rate of profit in the industry then falls.
But, there are a number of forces at work here that contradict this conclusion. Some of them have already been discussed. Firstly, the introduction of such new machines, it has been shown, increases rather than reduces the annual rate of profit, because not only do they mean a reduction in the quantity of fixed capital employed, but they imply a relative reduction in the value of that fixed capital. But, more importantly, they necessitate an increase in the rate of turnover of capital, such that although the mass of surplus value produced for any turnover period may fall in relation to the advanced capital, the total mass of surplus value produced in the year increases, relative to the advanced capital.
The increase in social productivity signified by the introduction of the new machine also reduces the value of other commodities, even if only indirectly, and therefore acts to reduce the value of constant and variable capital, thereby tending to increase the rate of profit. By reducing the value of labour-power, it also acts to increase the rate of surplus value, and, therefore, the rate of profit.
But, for modern capitalism there is another factor. Marx was writing about a situation where there was a plethora of small capitals each competing against each other, and each being a price-taker from the market. But, as soon as capital becomes dominated by a few very large socialised capitals, in the form of the joint stock companies etc., this changes. The production of these companies becomes so large that their supply itself acts to influence the market-value and market price of the commodities they produce. In other words, these companies know themselves in advance the consequences for market prices of any investment decisions they make. As part of the calculations they make, in deciding whether to introduce any such new machine, factory etc., they also consider the effect that any increased supply will have on market prices, and, therefore, profits, so they will not increase investment unless it acts to increase rather than reduce profits.
As Engels puts it, at this stage, which arises towards the end of the 19th. century, the kind of free market competition, which lies behind Marx's analysis of the earlier stages of capitalism, no longer applies to these huge companies that dominate the economy. That kind of free market competition becomes replaced by planning.
“Capitalist production by joint-stock companies is no longer private production but production on behalf of many associated people. And when we pass on from joint-stock companies to trusts, which dominate and monopolise whole branches of industry, this puts an end not only to private production but also to planlessness.”
A similar point is made by Andrew Kliman,
“Companies' decisions about how much output to produce are based on projections of demand for the output. Since technical progress does not affect demand – buyers care about the characteristics of products, not the processes used to produce them – it will not cause companies to increase their levels of output, all else being equal.” (Note 4, Page 16, The Failure Of Capitalist Production)
A similar point is made by Simon Clarke,
“Indeed it would be fair to say that the sphere of planning in capitalism is much more extensive than it is in the command economies of the Soviet bloc … The extent of coordination through cartels, trade associations, national governments and international organisations makes Gosplan look like an amateur in the planning game. The scale of the information flows which underpin the stock control and ordering of a single western retail chain are probably greater than those which support the entire Soviet planning system.”
(Capital and Class Winter 1990)
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