The Law Of The Tendency For The Rate of Profit To Fall - Part 26

Fall In the Value Of The Variable Capital (10)

In Part 25, it was shown that the value of labour-power may fall as a result of the cheapening of wage goods from things such as the removal of tariffs and other impediments to trade. But, the main cause of a reduction in the value of wage goods arises from the rise in the social productivity of labour, i.e. from the same cause of the tendency for the rate of profit to fall. Any rise in productivity will tend to cause the value of wage goods to fall, and not just a rise in productivity affecting the production of wage goods directly.

For example, an improvement in productivity in the transport industry, will reduce the cost of transporting commodities to markets, which will thereby reduce prices; an improvement in productivity in the energy industry will reduce the value of all commodities, which require energy for their production, which is pretty much all commodities; an improvement in productivity in machine production industries will reduce the value of machines used in a range of industries, including the production of wage goods; an improvement in productivity in extractive industries for metals etc. will reduce the value of commodities which comprise metals, and so on. Moreover, all of these will tend to have secondary effects, so that, for example, a reduction in the value of energy will not only directly affect those industries producing wage goods, but will also affect the machine producers that provide those industries with their machines, it will affect the transport industry that delivers commodities to markets, and inputs to producers, and so on. 

The consequence then is that the value of labour-power falls, because less labour-time is required to reproduce it. The value of variable capital thereby falls, but this in no way represents a rise in the technical composition of capital, causing the organic composition of capital to rise, and the rate of profit to fall. In fact, the opposite may arise. In some industries, it may be the case that a fall in the value of labour-power, acts as a disincentive to replace labour with machines, as was seen earlier, because the machine must be cheaper, i.e. require less labour for its production, than the paid portion of the labour-power it replaces. For example, Marx gives the example of the use of women to pull canal barges, because their labour-power was so cheap that it was more profitable than using horses! As was stated earlier, the real determinant is not the organic composition of capital c/v, but the relation of c to the new value created by the labour power, i.e. c/v+s.

If v falls because the value of labour-power falls then not only will s/v rise, but for the reasons set out above, its possible that c/v+s may also fall, as this cheaper labour replaces machines, or animals in the production process. In that case s/c+v will rise on two counts, first the relative fall in the technical composition of capital, and secondly the rise in the rate of surplus value.

But, in conditions of rising social productivity this can only arise in specific industries. By definition, it cannot apply across the whole social capital, because the basis of that rising social productivity is that relatively less labour-power is being employed to process a greater quantity of material, and it is this, which is also the basis of the fall in the value of labour-power. But, this has a number of consequences, some of which have already been considered. I will examine these next.

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