Capital III, Chapter 10 - Part 1

Equalisation of the General Rate of Profit Through Competition. Market-Prices and Market-Values. Surplus-Profit 

If we take the total social capital, then, like any other capital, it divides into c + v + s, the advanced capital being c + v. The relation of c/v gives the organic composition of the total social capital, which is by definition the average for all of the individual capitals that comprise it. Some of these individual capitals will have an organic composition higher than this, and some lower, whilst others will have a composition roughly equal to it. This can only ever be an approximation, for several reasons.

The average is constantly changing, because the composition of each capital is constantly changing.

The average is only an arithmetically derived figure. If we take the average height of five different people, the derived figure might not coincide with the actual height of any of the five.

As soon as prices of production take the place of exchange values, the value composition of capital can only be calculated using those prices. The value composition of firm A's capital, using prices of production, for its constant capital, might equal the average, but may not do so on the basis of exchange values. 

For those spheres of production that approximate the average, the price of production of their commodities will equal their exchange value, and their rate of profit will equal the average rate of profit.

I'm not sure I agree with the formulation that Marx uses to describe the process by which competition then leads to this average becoming a general rate of profit across the whole social capital, and it seems to differ from what he says elsewhere. He writes,

“This average rate of profit, however, is the percentage of profit in that sphere of average composition in which profit, therefore, coincides with surplus-value. Hence, the rate of profit is the same in all spheres of production, for it is equalized on the basis of those average spheres of production which has the average composition of capital. Consequently, the sum of the profits in all spheres of production must equal the sum of the surplus-values, and the sum of the prices of production of the total social product equal the sum of its value. But it is evident that the balance among spheres of production of different composition must tend to equalize them with the spheres of average composition, be it exactly or only approximately the same as the social average.” (p 173)

The tendency of competition will be to drive capital not towards that sphere where the rate of profit, and composition of capital is equal to the average, but towards that sphere where it is highest. It is not a transformation of the organic composition of the capital, which tends towards the average rate of profit, but the consequence for prices resulting from the increase in supply in high profit areas and reduction in supply in low profit areas.

It is not a search for the average rate of profit that brings it about, but a continual search for the highest rate of profit. The consequence of that search may also result in an increase in the organic composition of capital, in high profit areas, as each firm attempts to increase productivity and reduce costs, by replacing labour with machines, but that is a different matter. Marx makes this same argument himself later, in his further elaboration of the process, so it is really only a matter of what I think is here a poor formulation.

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