Wednesday, 6 August 2014

The Law Of The Tendency For The Rate of Profit To Fall - Part 28

Fall In the Value Of The Variable Capital (12)

In Part 27, it was shown that the rise in social productivity, which is the force which leads to a rising organic composition of capital, which is the basis of the tendency for the rate of profit to fall, in the case of production of wage goods, can in fact, result in the opposite, in a rise in the rate of profit accompanying the rise in the organic composition, because of the concomitant fall in the value of wage goods, and hence of labour-power, with a necessary rise in the rate of surplus value.

Marx says, in Capital III, Chapter 15, there is a limit to this because the surplus value produced by an increasingly smaller number of workers, must itself become increasingly smaller than the surplus value produced by a large number of workers, even if the rate of surplus value for the former is increasingly greater than that of the latter.

“Two labourers, each working 12 hours daily, cannot produce the same mass of surplus-value as 24 who work only 2 hours, even if they could live on air and hence did not have to work for themselves at all. In this respect, then, the compensation of the reduced number of labourers by intensifying the degree of exploitation has certain insurmountable limits. It may, for this reason, well check the fall in the rate of profit, but cannot prevent it altogether.” 

There are a number of things wrong with this. Firstly, Marx seems to have slipped into the same kind of error as Malthus and Ricardo here. Having recognised that the rise in the organic composition of capital, also goes along with a rising mass of capital, including variable capital, and of surplus value, Marx seems to have posited an absolutely declining number of workers. Only very rarely will it be the case that the expansion of capital, and the rise in the organic composition brings with it, an absolute reduction in the number of workers employed. Where that happens it is normally temporary, and as Marx sets out in Chapter 14, the release of capital this brings, means that new capitals are established that soak up the relative surplus population, usually at higher rates of profit.

In the example, given in Part 27, the rise in the organic composition of capital, not only led to a rising rate of profit, but it also resulted in a rising mass of profit, up 62.4% from the previous year. This is precisely the point Marx makes about the mass of profit rising even as the rate of profit falls. And, this increasing mass of profit, facilitates an absolute increase in the quantity of labour-power exploited, even as its quantity relatively declines. But, the same rise in the organic composition of capital, means that this increased mass of labour-power, is also thereby exploited to a higher degree, which results in an even greater mass of profits being produced!

If we extend the example, further we might have, for example, if the proportion of accumulation going to c rises to 70%, in terms of the quantities employed.

c 2736 + v 1887 + s 1887.

The number of units produced now becomes 9510. They have a total value of £6510. This gives a value per unit of £0.68. The value of labour-power, therefore falls again. If the working-day remains constant then the new value created by these 1887 units of labour rises proportionately. In that case v falls to £1283, which represents a further release of capital, but the surplus value, then rises to £2491. We then have in value terms,

c 2736 + v 1283 + s 2491.

The rate of surplus value rises to 194%, and the rate of profit rises to 61.98%.

The following table shows the extent to which the organic composition must rise in this example, before it offsets the rise in the rate of surplus value.

Constant Capital
Variable Capital
Surplus Value
Rate of Profit
OCC of Accumulated Capital

This indicates the points that Marx makes in relation to the effect of the massive expansion of production. In terms of the original output of 3000 units, the £200 Fixed Capital constituted £0.07 of the £1 price or 7%. By year 10, output amounts to almost 130,000 units. The £200 fixed capital now accounts for just £0.0015 of the price of a unit of output. Similarly, the variable capital accounted for £0.33 of the original price per unit, and now accounts for just £0.01. Even though the rate and mass of surplus value has risen, the surplus value, which originally accounted for £0.33 pence of the price of a unit, now accounts for just £0.053. By contrast, the materials which accounted originally for £0.266 of the unit price, now accounts for the same amount. The difference is that the original price per unit was £1, and is now just £0.33.

This demonstrates the point of the tendency for the rate of profit to fall as really a tendency for the profit margin to fall. It will later be shown how, in fact, this is compatible with a rise in the annual rate of profit. In fact, using this example, if 3,000 units continues to constitute the output of a working period, and ignoring the circulation period, the implication of the above is that the rate of turnover rises from 1 to 43, and the annual rate of profit rises from 50% to 662%!

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