Monday, 18 August 2014

The Law Of The Tendency For The Rate of Profit To Fall - Part 32

Fall In the Value Of The Variable Capital (16)

In Part 31, I pointed out that although Marx distinguishes between the “Rate of Profit” and “Annual Rate of Profit”, his analysis proceeds on the basis of the circulating capital turning over just once. But, as Marx and Engels make clear, this “Rate of Profit” is not a real rate of profit, precisely because in reality, the circulating capital DOES turn over in more or less time than a year, and so the advanced capital will NEVER be the same as the laid-out capital. The real rate of profit is given by the annual rate of profit, which is calculated by multiplying the surplus value produced in one turnover period by the rate of turnover of the circulating capital, and dividing it by the advanced capital for one turnover period.

In discussing the Law of the Tendency for the Rate of Profit to Fall, in Chapter 13, Marx essentially uses the definition of the “Rate of Profit” as set out in Chapter 9, thereby assuming a single turnover of the circulating capital, however. In part of that chapter, in looking at the real significance of the Law in producing lower profit margins, he does note this,

“Just as this decrease is absolute for a certain amount of capital, say of 100, it is also absolute for every individual commodity as an aliquot part of the reproduced capital. However, the rate of profit, if calculated merely on the elements of the price of an individual commodity, would be different from what it actually is. And for the following reason:”

To which Engels adds,

“[The rate of profit is calculated on the total capital invested, but for a definite time, actually a year. The rate of profit is the ratio of the surplus-value, or profit, produced and realised in a year, to the total capital calculated in per cent. It is, therefore, not necessarily equal to a rate of profit calculated for the period of turnover of the invested capital rather than for a year. It is only if the capital is turned over exactly in one year that the two coincide. 

On the other hand, the profit made in the course of a year is merely the sum of profits on commodities produced and sold during that same year. Now, if we calculate the profit on the cost-price of commodities, we obtain a rate of profit = p/k in which p stands for the profit realised during one year, and k for the sum of the cost-prices of commodities produced and sold within the same period. It is evident that this rate of profit p/k will not coincide with the actual rate of profit p/C, mass of profit divided by total capital, unless k = C, that is, unless the capital is turned over in exactly one year.]”

And on this basis, an analysis of the real rate of profit, the annual rate of profit, results in quite different conclusions from an analysis based on the “Rate of Profit”, where the capital turns over just once during the year. Undoubtedly, had Marx lived long enough, then just as he had done with the analysis of the annual rate of surplus value in Capital II, he would have enhanced his examples in respect of the rate of profit accordingly, to demonstrate the effect of rising productivity, not just in creating a tendency for the “Rate of Profit” to fall, which amounts to little more than a tendency for the profit margin to fall, to include the effect on increasing the rate of turnover of capital, and thereby causing the annual rate of profit to rise. Marx and Engels do describe this effect, but in all of the examples describing the falling rate of profit, it is the other “Rate of Profit” that forms the basis of the argument.

The only place where Marx really analyses this, is not in relation to Productive-Capital, but in relation to the turnover of Merchant Capital. The problem of not having made clear that it is the annual rate of profit that should form the basis of the “general rate of profit” then becomes clear, because having used the term “general rate of profit” throughout his analysis of how merchant's capital participates in its formation, when he comes to analyse the effect of the turnover of this merchant's capital he is led to use the term “general annual rate of profit”, which appears to be an amalgam of the two, but which he has nowhere explained.

Yet, it is impossible to analyse the effect of rising social productivity, which is the basis of the rise in the technical composition of capital, which is the necessary motive force for the tendency of the rate of profit to fall, without analysing its effect on increasing the rate of turnover of capital, which then results in a rising annual rate of profit, and the release of capital. I will examine that in relation to the fall in the Variable Capital next.

No comments: