Fall In the Value Of The Variable Capital (4)
Assume there are four industrial spheres. We can designate them as Food, Clothing, Shelter and Transport respectively. For the ease of calculation assume that the Organic Composition of Capital is the same in each. Such that:
C 1000 + V 200 + S 200 = 1400, R = 16.6%
C 1000 + V 200 + S 200 = 1400, R = 16.6%
C 1000 + V 200 + S 200 = 1400, R = 16.6%
C 1000 + V 200 + S 200 = 1400, R = 16.6%
Assume each industry employs 10 workers, each worker being paid £20.
Assume that technology remains constant, but assume increasing returns to scale. The first assumption is unrealistic, but improvements in technology would only emphasise the point rather than contradict it. The second assumption is completely realistic and empirically justified, as we see such economies of scale all the time. The £200 surplus in each industry is accumulated. So,
C 1167 + V 233 + S 233 = 1633, R = 16.6%
C 1167 + V 233 + S 233 = 1633, R = 16.6%
C 1167 + V 233 + S 233 = 1633, R = 16.6%
C 1167 + V 233 + S 233 = 1633, R = 16.6%
However, this conclusion is clearly invalid because elasticity of demand will be different in each sphere. But, we have assumed that there are increasing returns to scale. In other words, although the value of constant and variable capital has increased by 16.6%, the quantity of use values will have risen by a larger proportion than this. Let us assume that the production of use values has risen by a third to 1,333 units in each sphere. Then the average price per unit would be £1.225. However, that assumes that there is sufficient demand for all of this production, at this price. There is no guarantee that is the case. Suppose, at the price of £1.225 per unit there is only demand for 1,166 units. In that case, the labour-time consumed in producing 167 units was not socially necessary. It has to be deducted from the value of the total production in each sphere. In that case the actual value of production will fall in each sphere to around £1,429, meaning the value of each unit falls to £1.07.
So, on this basis in each sphere we have:
C 1167 + V 233 + S 29 = 1429, R' = 2%
We have essentially assumed that only workers are consumers here. Clearly, capitalist consumption could soak up some of the additional surplus production, but the aim of capitalist production is not increased luxury consumption by capitalists, but the self-expansion of capital.
As Marx says,
“It will never do, therefore, to represent capitalist production as something which it is not, namely as production whose immediate purpose is enjoyment or the manufacture of the means of enjoyment for the capitalist. This would be overlooking its specific character, which is revealed in all its inner essence.”
Unless, capitalists were to get together, and conspire to collectively raise their own unproductive consumption, then competition between capitalists will drive them to continue to accumulate capital, and to seek to each gain a larger market share. Of course, it is possible to argue that this is precisely what the capitalist state does on behalf of Capital in General via Keynesian intervention.
So, capital will try to sell this additional surplus production, but because, beyond a certain limit, demand does not increase proportionate to falls in price i.e. the demand is price elastic, prices have to fall proportionately more than the desired increase in demand! To use the terms of orthodox economics, the more demand is satisfied, the lower the marginal utility of each unit. To put it in Marx's terms, socially necessary labour-time is determined ultimately in the market, it cannot be separated from what the actual level of demand for each product is.
Or,
“The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.”
Any surplus production over what is demanded, is not socially necessary labour-time. It cannot be counted as value creating, and the consequence is that the value of each unit of production is lowered accordingly.
Of course, as it stands this is unrealistic. In fact, the elasticity of demand in each sphere will be different. In order to create sufficient demand to consume the excess supply of food, for instance, may require only a small drop in price. In order to get people to consume the excess units of transport (by driving more, taking more or longer train journeys etc) may require a much bigger fall in prices.
The workers may continue to spend the same amount of money overall, but its division amongst the different spheres will now be changed as a consequence of the different elasticities of demand. So, the price per unit for food might fall to only £1.15, for clothing to £1.14, whereas for shelter it may fall to £0.98, and to £0.97 for Transport. Yet, its clear that this will then have further consequences. At these prices not only would there be divergent rates of profit in each sphere, but in some spheres if current levels of production were maintained there would be losses. Capital would then move to where the rate of profit was higher. The increased supply would then cause prices and profits in that sphere to fall, whereas prices and profits in the area out of which capital has moved would rise. Its clear from what has been said that the end result will be a new structure of capital, with more capital employed in food and clothing, and less in shelter and transport, until the same price per unit, and the same rate of profit is established.
However, suppose as a consequence of a whole series of discoveries and developments four new industries are created, say producing micro-electronics, biotechnology, computer games and healthcare.
Now, instead of the total of £800 of additional capital being employed in industries 1-4, it is employed in creating industries 5-8. The supply of commodities 1-4 remains as it was. The “magnitude of definite social wants” that previously existed continues to be met, at the original price of £1.40, and the original amount of constant and variable capital continues to be employed to satisfy those wants. But now, the additional capital employs the additional workers, and additional constant capital, producing commodities 5-8. As new commodities they have a completely new “magnitude of definite social wants” waiting to be satisfied. To the extent that demand for commodities 1-4 falls as the original workers/consumers decide to purchase an amount of commodities 5-8, so it is compensated for by the additional demand for commodities 1-4, from the new additional workers.
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