Friday, 29 August 2014

The Law of The Tendency For The Rate of Profit To Fall - Part 35

Fall In the Value Of The Variable Capital (19)

In Part 34, it was shown how the rise in productivity increases the annual rate of profit, but also results in the release of capital, as the period during which variable capital is advanced is continually reduced. But, this release of capital, also has other results. If we take the release of capital in Year 2 above, the advanced variable capital was £670, representing a release of capital of £330.

On the assumptions made so far, the cost of fixed capital is £200. This fixed capital is assumed to last for one year, and each year, it has been replaced by new fixed capital of the same value, but which is progressively more productive. Given the assumptions made, if double the quantity of fixed capital were employed, then assuming twice as many workers were employed to operate it, twice the quantity of material could be processed. But, the consequence of this is interesting.

Currently in Year 2, using £200 of fixed capital, 800 units with a value of £800, is processed by 1400 labour units employed with a variable-capital of £670. If £400 of fixed capital were employed, then to operate it, 2800 labour units would be required. It would then appear that an additional £670 of variable capital would be required, along with an additional £800 of circulating constant capital (material) to be processed. But, in fact, that is not the case.

If the amount of output for a turnover period remains 3000 units, then the material required to produce this 3000 units does not change. It is still the case that only 800 units of material (£800) is required to be advanced for the turnover period. But, also if double the quantity of fixed capital, and double the quantity of labour-power produces double the output in a given period of time, by the same token, the same quantity of output (3,000 units) can be produced in half the time.

In other words, although twice the physical quantity of workers is employed, the variable capital advanced, is advanced for only half the time. Previously it took 29.71 weeks to produce 3000 units, but now with twice the amount of fixed capital, and twice the quantity of labour-power, this 3000 units can be produced in just 14.85 weeks. The amount of variable capital advanced for this turnover period is then still only £670. The annual rate of profit can then be calculated.

The surplus value produced by the 1400 labour units in 29.71 weeks was £930. The surplus value produced by 2800 labour units in 14.85 weeks is, therefore, the same. The total surplus value produced in the year is then s x n = 930 x 3.5 = £3,255. The fixed capital advanced for a turnover period is £400, the circulating constant capital is £800, and the advanced variable capital is £670. The total advanced capital is then £1,870. The annual rate of profit is then 3255/1870 = 174%.

That is a rise from 97%, of 79%. In other words, this rise in the organic composition of capital brought about by a doubling of the fixed capital, results not in a fall in the rate of profit, but a significant rise. This is the reason that so far as it remains possible to find available markets for the output, capital always has an incentive to utilise the released capital to invest in additional fixed capital, so as to increase productive potential, because although this means that the quantity of laid out capital increases, the quantity of advanced capital does not, and consequently the annual rate of profit must rise.

This is a further validation of Marx’s analysis that the very process that results in a tendency for the “Rate of Profit” to fall, simultaneously results in a tendency for the mass of capital to grow, including the mass of variable capital, and for the mass of profits to grow alongside it. It results in an increasing volume of released capital available for yet further accumulation.

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