Sunday, 24 August 2014

The Law of The Tendency For The Rate of Profit To Fall - Part 34

Fall In the Value Of The Variable Capital (18)

In Part 33, it was set out how a dramatic rise in the organic composition of capital, leading to a fall in the “Rate of Profit”, also results in an equally dramatic rise in the annual rate of profit, as the rise in productivity, that underlies the former, brings about equivalent increases in the rate of turnover of capital. But, even this is only part of the story. Alongside the rise in the rate of turnover, and lying behind the rise in the annual rate of profit, is a continual release of capital. This release of capital is also the other side of the process by which a relative overpopulation is created. The two things together form the basis of additional accumulation either in the existing industries or in new lines of production, as Marx sets out in Chapter 14.

If we look at what is happening as the rate of turnover rises, it can be analysed in the terms that Marx sets out for determining the annual rate of profit. The calculation of the annual rate of profit is the surplus value, produced in one turnover period, multiplied by the number of turnovers in the year, divided by the advanced capital, for one turnover period, of the circulating capital. Because the fixed capital always has to be present for production to take place, the full value of the fixed capital is always included in the advanced capital, whose other components are the circulating constant capital, and the variable capital.

If we ignore the circulation period, or simply assume that the 3000 units produced in Year 1 constitutes an entire turnover period, including the circulation period, then we can use this formula to examine the basis of the annual rate of profit in each year. In Year 1, because there is only one turnover of the capital, the year is the turnover period, so the calculation, using the formula s x n/c+v, is 1000 x 1/(200 + 800) + 1000 = 50%.

In Year 2, because of the rise in productivity, which stands behind the rise in the organic composition of capital, and tendency for the rate of profit to fall, the capital is turned over 1.75 times. Put another way, a single turnover period is now 29.71 weeks. On this basis the surplus value, constant capital and variable capital advanced for this period can be calculated. In Year 2, the amount laid out each week for wages is £23 (rounded up). The amount of variable capital advanced for a turnover period is then £670. Similarly, the circulating constant capital is £27 per week = £802, whilst the fixed capital is £200. The surplus value is £930.

Obviously, the consequence here is that the advanced capital for the turnover period is less than the capital laid out for the year. The capital advanced for materials for the turnover period remains the same (allowing for rounding) because, the material used to produce the 3000 units that comprise the turnover period does not change. However, the rise in productivity means that even if the same quantity of labour were used as previously, the shorter turnover period means that less is advanced as variable capital. In addition to the variable capital released, as was previously seen, because of the fall in the value of labour-power, due to the cheapening of wage goods, an additional amount of capital is released here, because variable capital is now advanced for only 29.71 weeks, rather than 52 weeks.

So, even if the technical relation, between material and labour, remained 8:10, so that 1000 units of labour were advanced, instead of this 1000 units being advanced for a year, it is only advanced for 29.71 weeks. Even discounting the reduction in the value of this labour-power due to the rise in productivity, the fact that it is advanced for this shorter period of time means that the difference in the advanced variable capital is released. The value of the variable capital advanced for 52 weeks, was £1,000. But, even on the above basis, the value of the variable capital advanced for Year 2 falls to £571. That is a release of capital of £439, solely due to the reduction in the turnover period.

The rise in productivity means that the technical composition of capital has risen so that, instead of 1000 units of labour being advanced, only 800 units of labour are advanced for the turnover period. Again even discounting the reduction in the value of labour-power, that means that £200 of capital is released.

This creates a contradictory effect that, after taking these other factors into account, the end result is a smaller release of capital, than if it were just a result of the rise in the rate of turnover, because the release of capital, due to the other factors, reduces the saving that can be achieved solely on the basis of the increased rate of turnover. In short, the higher the variable capital advanced for a turnover period, the greater the release of capital to be achieved by shortening the period of turnover.

By the time we get to Year 10, the turnover period is only 1.2 weeks. In order to produce the 3000 units of output, the variable capital advanced is then just £31, or a release of Capital of £1,969.

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