## The Effect of Price Fluctuation

### 1. Fluctuations in the Price of Raw Materials, and their Direct Effects on the Rate of Profit

Its assumed, in this analysis, that the rate of surplus value remains constant. That way, it is only the effect of changes in price of the constant capital, on the rate of profit, that are isolated. Changes in those prices may result in more or less labour-power being employed, and so more or less surplus value being produced, whilst the rate stays the same. But, to isolate the effect of the price change on the rate of profit, even those effects should be discounted.

If the rate and amount of surplus value is held constant, then its obvious that any change in c brings about also a change in C (c+v), and, therefore, a change in the rate of profit, because p' = s/c+v. These effects on the rate of profit affect capital in all spheres, be it the production of fixed or circulating capital, means of production or consumption, the production of necessities or luxuries.

Under the heading of materials is included the auxiliary materials such as the lubricating oil for machines, and the gas and electric used for heating and lighting, as well as the raw material to be processed in the production of the end product. Such materials are also used in the production of machines, and so changes in their price affect the value of those machines. The more abundant these materials are, that are required for the construction and operation of machinery, the more it “presents itself here as a natural fertility of capital and is a factor determining the rate of profit irrespective of the high or low level of wages.” (p 106)

Because raw materials form a large part of the constant capital, any change in their price leads to a significant change in the rate of profit, though not in the rate or quantity of surplus value. The rate of profit changes not because the change in the price of the raw material causes the amount of profit to change, but because it causes the value of the advanced capital to change.

“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.” (p 106)

A number of important practical conclusions can be drawn. Firstly, low prices of materials are important for industrial countries. Lower costs lead to lower prices, which will encourage higher levels of demand, which in turn means a greater volume of surplus value. But, lower prices also lead to a lower value of labour-power through the cheapening of wage goods. That means that relative surplus value rises. But, even setting aside these effects and holding the rate and quantity of surplus value constant, the reduction in the value of the constant capital, brings with it an increase in the rate of profit.

#### 1 comment:

Magpie said...

Boffy,

This is strictly off-topic, but I thought you might be interested, as you have already been visited by Keynesian missionaries evangelizing the heathens.

I am writing a light-hearted critique of Keynesianism. It's not an scholarly work and I am no scholar. It's aimed at the general public.

But, if it were to add nothing, at least the posts are short and perhaps you may laugh at my jokes.

This is the trailer:
http://aussiemagpie.blogspot.com.au/2015/05/coming-attractions.html

And this is the list of posts already published:
http://aussiemagpie.blogspot.com.au/search/label/Confidence%20Fairy

Cheers.