Tuesday, 12 August 2014

The Law Of The Tendency For The Rate of Profit To Fall - Part 30

Fall In the Value Of The Variable Capital (14)

The example given in Part 27, was for only the production of wage goods. Obviously, the situation of a rise in productivity affecting the production of means of production would have different consequences. At the same time, a fall in the value of labour-power due to rising social productivity, in the production of wage goods, increases the rate of surplus value, and consequently the rate of profit in the producer goods sector, without there being necessarily any rise in the technical composition of capital in that area. So, for example there may be,

c 1000 + v 1000 + s 1000 (each representing one physical unit with a value of £1).

If, as in Part 28, the value of wage goods falls to £0.68, the variable capital here falls to £680, but the new value created remains £2,000, as 1000 units of labour continue to be employed. The surplus value rises then to £1320. The rate of surplus value rises to 194%, and although the organic composition of capital thereby rises from 1:1 to 1.47:1, the rate of profit rises from 50% to 78.57%.

In the wage goods sector, the rise in productivity led to a fall in the price of those commodities, because the quantity of labour and of fixed capital, per unit of output fell. But, in the producer goods sector, the fall in the value of variable capital, due to the fall in the value of labour-power, does not cause the price of producer goods to fall, because there is no equivalent reduction in the quantity of labour per unit of output. It is not that less labour per unit is used, but only that the value of the labour-power falls, bringing with it a concomitant rise in the proportion of unpaid labour.

However, in the context of rising social productivity, it is unlikely that the increases in productivity would be restricted to the wage goods sector alone. As Marx points out, technological developments tend to occur in one industry at a time, and all these various effects can take place sequentially as well as concurrently. But, if we are considering the Law of the Tendency for the Rate of Profit to Fall as a process resulting from this rising social productivity, it must be considered over a period of time, rather than just what is happening at some particular point. Moreover, as stated earlier, with some technological developments, their effect is extremely widespread. The introduction of the steam engine affected almost every industry of the time, for example. The introduction of electricity as a source of energy had a similar revolutionising effect, as did the introduction of the internal combustion engine. More recently, the development of the personal computer and the internet affects virtually every existing industry, and helps promote the development of new industries.

In all these cases, its likely that there would be significant increases in productivity, which would reduce the relative quantity of variable capital employed, and thereby create a tendency for the rate of profit in these producer goods industries to fall, offsetting the tendency for it to rise discussed above, due to the fall in the value of labour-power, and increase in the rate of surplus value. The difficulty of determining whether any of these factors will cause the rate of profit to rise or fall, is, however, manifest by the fact that this rise in productivity and fall in the amount of labour per unit itself causes the prices of producer goods to fall. A fall in producer goods prices, then has a secondary effect in relation to wage goods, because the constant capital used in that sector now falls in value, which causes the rate of profit to rise! But, of course, the producer goods sector itself is a major consumer of producer goods, as Marx points out. The fall in the price of producer goods, therefore equally acts to cause the rate of profit for the producer goods sector to rise too.

If we think about a grain producer, they plant 1000 units of grain, and usually obtain say 10,000 units of grain in the crop. Of this, they need 1,000 units to replace the original seed (constant capital) 6,000 units to cover the wages of their workers (variable capital), 2,000 units for their own consumption, leaving 1,000 units for accumulation (3,000 units surplus value). The rate of profit is then equal to 42.86%. But, if productivity rises, so that the 1,000 units produces, 15,000 units rather than 10,000, the value of the constant capital and variable capital has declined measured in grain, because less labour-time is required to produce it. The surplus production rises from 3,000 units to 8,000, giving a rate of profit of 114.29%.

Previously, this capital could only have expanded to the extent of sowing an extra 142 units of seed, and employing an additional 857 units as variable capital. But, now it can expand by six times that amount.

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