Friday, 6 March 2015

The Long Wave - Part 14

On the one hand, the lower prices, of primary products, mean that industrial producers benefit from lower costs of constant and variable capital. Lower primary product prices reduce the value of constant capital.

“The raw materials here include auxiliary materials as well, such as indigo, coal, gas, etc. Furthermore, so far as machinery is concerned under this head, its own raw material consists of iron, wood, leather, etc. Its own price is therefore affected by fluctuations in the price of raw materials used in its construction. To the extent that its price is raised through fluctuations, either in the price of the raw materials of which it consists, or of the auxiliary materials consumed in its operation, the rate of profit falls pro tanto. And vice versa.”

(Capital III, Chapter 6)

Any such fall in the value of constant capital, be it the fixed or circulating constant capital, not only results in a rise in the rate of profit, but it also results in a release of capital, which can then be used for additional accumulation.

“Since the rate of profit is s/C, or s/(c + v), it is evident that every thing causing a variation in the magnitude of c, and thereby of C, must also bring about a variation in the rate of profit, even if s and v, and their mutual relation, remain unaltered. Now, raw materials are one of the principal components of constant capital. Even in industries which consume no actual raw materials, these enter the picture as auxiliary materials or components of machinery, etc., and their price fluctuations thus accordingly influence the rate of profit. Should the price of raw material fall by an amount = d, then s/C, or s/(c + v) becomes s/(C - d), or s/((c - d) + v). Thus, the rate of profit rises. Conversely, if the price of raw material rises, then s/C, or s/(c + v), becomes s/(C + d), or s/((c + d) + v), and the rate of profit falls. Other conditions being equal, the rate of profit, therefore, falls and rises inversely to the price of raw material.”


But, the fall in primary product prices (and their consequent effect in reducing the prices of other constant capital) also feeds through into the value of wage goods, and thereby reduces the value of labour-power.

“Inasmuch as the value of labour-power rises because there is a rise in the value of the means of subsistence required for its reproduction, or falls because there is a reduction in their value — and the appreciation and depreciation of variable capital are really nothing more than expressions of these two cases — a drop in surplus-value corresponds to such appreciation and an increase in surplus-value to such depreciation, provided the length of the working-day remains the same...

If wages fall in consequence of a depreciation in the value of labour-power (which may even be attended by a rise in the real price of labour), a portion of the capital hitherto invested in wages is released. Variable capital is set free. In the case of new investments of capital, this has simply the effect of its operating with a higher rate of surplus-value. It takes less money than before to set in motion the same amount of labour, and in this way the unpaid portion of labour increases at the expense of the paid portion. But in the case of already invested capital, not only does the rate of surplus-value rise but a portion of the capital previously invested in wages is also released. Until this time it was tied up and formed a regular portion which had to be deducted from the proceeds for the product and advanced for wages, acting as variable capital if the business were to continue on its former scale. Now this portion is set free and may be used as a new investment, be it to extend the same business or to operate in some other sphere of production.”


The effect of the fall in oil prices both in raising the rate of profit by reducing the value of constant capital, as well as by reducing the value of labour-power, and also providing the basis for a release of capital of both kinds can be seen as a powerful means of providing stimulus in the global economy.

On the other hand, in the industries and countries that are the producers of these products, this goes along with a significant reduction in revenues. All primary production is a part of Department I, the production of producer goods, which takes part in the overall social exchange with Department II. The consequence is thereby contradictory. The fall in the value of raw materials acts to increase the rate of profit, for all those industries (including those in Department I) that use these products, as well as lowering the value of labour-power, increasing the rate and mass of surplus value, and thereby again increasing the mass and rate of profit. The general rise in the rate of profit, and release of capital, thereby acts to stimulate output. At the same time, the reduction in revenues for primary product producers, means that the demand for Department II commodities is reduced. This adds to the previously described limitations on realising profits.

Overall, however, this reduction in the amount of labour-time required for the production of these primary products is to stimulate additional output. As Marx sets out in, Capital III, Chapter 47, it was increases in productivity in agriculture that initially made it possible for labour-time to be devoted to other things than simply meeting Man's essential needs.

“The physiocrats, furthermore, are correct in stating that in fact all production of surplus-value, and thus all development of capital, has for its natural basis the productiveness of agricultural labour. If man were not capable of producing in one working-day more means of subsistence, which signifies in the strictest sense more agricultural products than every labourer needs for his own reproduction, if the daily expenditure of his entire labour power sufficed merely to produce the means of subsistence indispensable for his own individual requirements, then one could not speak at all either of surplus-product or surplus-value. An agricultural labour productivity exceeding the individual requirements of the labourer is the basis of all societies, and is above all the basis of capitalist production, which disengages a constantly increasing portion of society from the production of basic foodstuffs and transforms them into "free heads," as Steuart [Steuart, An Inquiry Into the Principles of Political Economy, Vol. I, Dublin, 1770, p. 396. — Ed.] has it, making them available for exploitation in other spheres.” 

The fall in final demand arising from the fall in revenues for primary producers, is thereby more than outweighed by the development of new industries, and the expansion of capital that results, from the release of available social labour-time and capital, which in turn creates additional final demand.

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