“It leaps to the eye, particularly in the case of agriculture, that the causes which raise or lower the price of a product, also raise or lower the value of capital, since the latter consists to a large degree of this product, whether as grain, cattle, etc.” (p 114)
Changes in the price of the variable capital also affect the rate of profit, but do so in a different way to changes in the price of the constant capital. A fall in the price of the variable capital reduces the amount of capital advanced, and in that way raises the rate of profit in the same way. However, the value of constant capital is transferred to the final product, but the value of the variable capital is not. The value created by the labour set in motion, by the variable capital is wholly separate from the value of the labour-power bought with that variable capital.
For example, the value of a day's labour-power of a machine minder might be £50, and that of a brain surgeon £80. The latter is higher because they require more training etc. But, because of the skill of the latter, thereby obtained, the value they produce in a day may be many times that of the machine minder. The former may produce £100 of new value, thereby reproducing their labour-power and creating £50 of surplus-value. The latter may produce £500 of new value in a day, thereby reproducing their labour-power and creating £420 of surplus value.
The fact that this would mean that there was a much higher rate of surplus value in the latter should mean that competition would force up wages of brain surgeons above the value of their labour-power, which in turn would encourage more people to become brain surgeon's, which ultimately would mean the value of their product would fall in the market. Marx describes this process later in setting out why the assumption of a single rate of surplus value is valid. However, as he says there, this assumes that there is complete free movement of labour, and no restrictions preventing labour from moving from areas where wages are low to where they are high. In practice that is not the case.
Consequently, just because the value of labour-power rises or falls, this has no consequence for the new value created during a particular time. The only consequence it has is on how that new value is distributed. If 10 hours of new value is created, and currently it is divided 5 hours necessary and 5 hours surplus labour, then if the value of labour-power falls to 4 hours, it does not change the fact that 10 hours are still created. It only means that 10 hours are now distributed 4 for wages, and 6 for surplus value.
If the value of labour-power falls, therefore, the amount of capital that has to be advanced falls, so the rate of profit rises. If we have:-
c 100 + v 100 + s 100, the rate of profit is 50%.
If wages fall to 50 and surplus value remained the same, the rate of profit would rise to 66.6%. But, the surplus value would not remain the same. The labour creates 200 of new value still. It would now be divided:-
c 100 + v 50 + s 150, r' = 150/150 = 100%.
A new capital entering this business would then require less capital than previously and would benefit from this higher rate of surplus value and profit. But, an existing capital would also benefit from a release of capital.
The value of its product is
c 100 + v 50 + s 150 = 300.
Previously, out of this £300 it had to lay out £200 for productive-capital. Now it only has to lay out £150. £50 of capital has been released. It can be used to expand the business, as unproductive consumption, or to invest in some other business.
The same is true, in reverse, if wages rise. In that case, the variable capital that must be laid out rises, and so the total capital laid out rises. The rate of profit thereby falls, and also means that more capital is tied up, so that production continues on the same basis. In addition, the rise in wages means that a greater portion of the new value produced goes to the workers, and less to surplus value, so the rate of surplus value falls. The rate of profit falls for that reason too.
Of course, capital could respond to higher wages by employing less labour-power. But, if the rate of surplus-value did not rise as a result of these workers working more intensively or extensively, that would also involve less surplus value being produced. It would also require production to continue on a reduced level meaning some of the fixed capital would then be under used, which would be inefficient and cause the rate of profit to fall.
To continue production on the same scale, additional capital is then required, which means using some of the surplus value previously intended for accumulation, or else intended as revenue for the capitalist's unproductive consumption, or else funds from elsewhere must be introduced.
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