Monday, 4 August 2014

The Law Of The Tendency For The Rate of Profit To Fall - Part 27

Fall In the Value Of The Variable Capital (11)

The extent to which the rise in relative surplus value results in a rise or fall in the rate of profit, depends upon the extent to which the rate of surplus value rises, relative to the rise in the organic composition of capital. As Marx says, both are different sides of the same coin of rising social productivity. Relative surplus value rises, because increased social productivity causes the value of wage goods to fall; increased social productivity requires that relatively less labour-power is employed, so the organic composition of capital rises. The latter creates a tendency for the rate of profit to fall, because a smaller relative quantity of labour-power creates a relatively smaller quantity of surplus value. The former increases the rate of profit, because it directly increases the mass of surplus value.

Suppose we take wage goods production as though it were one capital. It is comprised of a machine costing £200, 800 units of materials costing £800, and 1000 units of labour costing £1,000, with a 100% rate of surplus value. Assume the machine wears out in one year.

c 1000 + v 1000 + s 1000, which constitutes 3000 units of wage goods.

As a result of the introduction of a new machine, of the same cost, productivity rises so that the organic composition of capital rises. So, when the 1000 of surplus value is accumulated, 60% goes to c and only 40% to v. In other words, the physical quantity of constant capital rises relative to the physical quantity of labour-power. The technical composition of capital rises. We then have,

c 1600 + v 1400 + s 1400.

Of this £200 is made up of the machine. We then have 1400 units of material processed by 1400 units of labour, which is a rise in productivity of 25%. 

However, because of the rise in productivity, the value of wage goods falls. Previously 3000 units were produced with a value of £3,000 giving a price per unit of £1. If previously 800 units of material were processed into 3000 commodities, then 1400 units of material are processed into 5250 commodity units. The total value of these units is £4400, which gives a price per unit of £0.84. As these are wage goods consumed by the workers, and their price has fallen from £1 to £0.84, this means the value of the labour-power employed must fall.

The value of the labour-power of the 1400 workers employed is then not £1400, but only £1176, which means that the rise in productivity, and consequent rise in the technical composition has caused a release of capital of £224, because it now needs to comprise 1400 units of wage goods with a value of £0.84. The new value created by this labour-power has not changed. All that has changed is the value of the labour-power that produced it. In other words, the rate of surplus value has risen. We now have.

c 1600 + v 1176 + s 1624.

The original rate of surplus value was 100%. It is now 138%. The original organic composition of capital was 1:1, and it is now 1.36:1. The original rate of profit was 50%, and it is now 58.5%.

In other words, here the process which stands behind the law of the tendency for the rate of profit to fall, has resulted in the opposite. Because that process is caused by a rise in social productivity, it necessarily involves a reduction in the value of labour-power, as the price of wage goods is reduced. As the value of labour-power falls, the rate of profit rises. Relatively fewer workers were employed, and consequently produced relatively less surplus value, but the very process which caused the relative fall in the number of workers employed, also led to the quantity of surplus value produced by each of the workers that was employed rising. Moreover, as Marx describes, although the relative quantity has fallen, the absolute quantity of labour-power has risen by 40%, and this too is a direct consequence of the very same process of the rise in social productivity that stands behind the tendency for the rate of profit to fall.

Marx's comment that these two effects are different sides of the same coin can then be seen clearly. With a 25% increase in productivity arising from the new machine, the organic composition of capital rises to 1.36:1. This is in part the reduction in the quantity of labour power employed, and part the reduction in the value of the labour-power employed. If we measure the value of the constant capital to the new value created by labour then it rises from 0.50:1, to 0.57:1. In other words, part of the explanation is the rise in the technical composition of capital, and part is the rise in the value composition of capital. Without the rise in productivity, 1500 units of labour would have been employed. In fact only 1400 units are employed, despite the fact that the number of units of material processed has risen from 800 to 1400.

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