Monday, 15 June 2015

Capital III, Chapter 7

Supplementary Remarks 

The capitalist will not view his profit as identical with the surplus value extracted from his workers.

“1) In the process of circulation he forgets the process of production. He thinks that surplus-value is made when he realises the value of commodities, which includes realisation of their surplus-value. [A blank space which follows in the manuscript, indicates that Marx intended to dwell in greater detail on this point. – F. E.]” (p 138)

But, secondly, as demonstrated in the previous chapter, even with the same number of workers, the same rate of exploitation, and the same amount of surplus value, one firm will make a higher rate of profit than another. That is because different firms will have different machinery that they may use more or less efficiently, they may have bought it more cheaply than their competitors etc. Similarly, with the materials they buy. In other words, at this concrete, practical level of competition between 'many capitals' there is scope for variations arising from the skill and business acumen of the individual capitalist or their managers, buyers, salesmen and so on.

“And this circumstance misleads the capitalist, convinces him that his profits are not due to exploiting labour, but, at least in part, to other independent circumstances, and particularly his individual activity.” (p 139)

Marx sets out why the argument put forward by Rodbertus, that a change in the magnitude of capital has no effect on the rate of profit, is wrong. That can be so only in two cases. Firstly, if the change is due solely to a change in the value of money. If the value of money halves, then the nominal value of the capital doubled. But, in this process, the value of all parts of the capital, i.e. the constant and variable components, double, so the organic composition remains the same. The nominal value of the profit also doubled, and so the rate of profit cannot change.

c 100 + v 100 + s 100; s/C = 50%

c 200 + v 200 + s 200; s/C = 50%.

This is also the basis of the second case, i.e. the value of money does not change but nor does the organic composition of capital. Then the amount of surplus value rises proportionately too, provided the rate of surplus value is constant.

But, as was seen in Volume I, an increase in the magnitude of a given capital is nearly always consistent with an increase in its constant component as against the variable component. This should not be confused with the situation facing capital in general, however. In an economy, new capitals are being created all the time, and for capitals in new branches of industry, the organic composition will almost inevitably be lower than the average. Depending upon the proportions of new to old, and the relative compositions of each, the organic composition of capital could be rising or falling at any particular time.

In the long wave cycle, its not that certain periods have exclusively intensive accumulation, and in others exclusively extensive accumulation.  Both exist side by side.  It is a matter that at certain points of the cycle, intensive accumulation will be far more predominant that extensive accumulation. At periods of intensive accumulation, the introduction of labour saving technology will create a sharp rise in the organic composition of capital, as well as a depreciation of fixed capital values.  In periods of extensive accumulation, it will be economies of scale that will tend to increase the proportion of material processed relative to fixed capital, and labour.  That will act to reduce the rate of profit/profit margin, but by increasing the rate of turnover of capital, it is likely to also raise the annual rate of profit.

Moreover, the change in the magnitude of capital may not only signify a change in the organic composition. The increase, for example, in the use of machinery, may increase the rate of surplus-value, and thereby the rate of profit. It may also accompany a cheapening of constant capital by the same means, and also thereby a rise in the rate of profit.

Marx then goes on to give what is one of the clearest refutations of the TSSI.

“Fluctuations in the rate of profit may occur irrespective of changes in the organic components of the capital, or of the absolute magnitude of the capital, through a rise or fall in the value of the fixed or circulating advanced capital caused by an increase or a reduction of the working-time required for its reproduction, this increase or reduction taking place independently of the already existing capital. The value of every commodity – thus also of the commodities making up the capital – is determined not by the necessary labour-time contained in it, but by the social labour-time required for its reproduction. This reproduction may take place under unfavourable or under propitious circumstances, distinct from the conditions of original production. If, under altered conditions, it takes double or, conversely, half the time, to reproduce the same material capital, and if the value of money remains unchanged, a capital formerly worth £100 would be worth £200, or £50 respectively.” (p 141)

In other words, Marx is stating clearly here that in determining the rate of profit it is the relation of the surplus value to the actual current cost of producing that surplus value that is relevant not the historical money price that was paid for that capital. It is the current cost of reproducing the advanced capital, be it the fixed or circulating, the constant or variable capital.

If this change in value affects all the capital uniformly, so that the organic composition remains constant, and assuming no change in the rate of surplus value, then the rate of profit would remain constant, because the amount of surplus value would rise proportionately. The same would be true if this change was merely the result of a change in the value of money.

“But if it involves a change in the organic composition of the capital, if the ratio of the variable to the constant portion of capital rises or falls, then, other circumstances remaining the same, the rate of profit will rise with a relatively rising variable capital and fall with a relatively falling one.” (p 141)

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