By contrast, in the Summer and early part of the Autumn phase of the Long Wave, like the 1960's – late 1970's, the opposite applies. Basically, the existing technology is simply rolled out on a larger scale. Productivity fails to rise significantly, profits are squeezed, whilst the mass of capital fails to expand at a fast enough rate to cause the mass of profits to rise enough to bring about a rising rate of profit. It is this process, which leads capital to seek to introduce new labour-saving technology, which thereby raises the organic composition of capital, and creates the tendency for the rate of profit to fall (latter part of the Autumn phase, 1980-87). But, it is this very process, which thereby then creates the conditions for a fall in the value of constant capital, the value of labour-power and a rising rate of profit, during the stagnation or Winter phase of the cycle (1987-99), which in turn creates the basis of the new boom phase.
“Thus, the same development of the social productiveness of labour expresses itself with the progress of capitalist production on the one hand in a tendency of the rate of profit to fall progressively and, on the other, in a progressive growth of the absolute mass of the appropriated surplus-value, or profit; so that on the whole a relative decrease of variable capital and profit is accompanied by an absolute increase of both. This two-fold effect, as we have seen, can express itself only in a growth of the total capital at a pace more rapid than that at which the rate of profit falls.” (p 223)
The previous economists failed to understand this process, because they did not understand the difference between constant and variable capital, and so did not grasp the source of surplus value, and the difference with profit. So, when they consoled themselves with the observation that whilst the rate of profit was falling, the mass of profit was rising, this was based on weak theoretical foundations, which is why they were led into a Malthusian, catastrophist belief that a falling rate of profit must, at some point, lead to a falling mass of profit, which would spell the end of Capitalism. Some supposedly Marxist economists promote this Malthusian/Ricardian argument even today, to predict some kind of collapse of capitalism.
Marx believed such arguments were nonsense, and sets out why. For example, in Theories of Surplus Value II, he writes,
“A distinction must he made here. When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, over-production and crises are something different. Permanent crises do not exist.”
(Theories of Surplus Value, Chapter 17, Note 1)
Marx makes clear why the Ricardian position is wrong. If the mass of profit is a function of both the rate of profit and mass of capital, then its possible that the mass of profit could be less if the mass of capital is not sufficient to compensate for a lower rate of profit. For example, £1 million of capital with a 5% rate of profit produces £50,000 of profit, but £2 million of capital with a 2% rate of profit produces only £40,000 of profit.
However, Marx points out that this assumes that the fall in the rate of profit and the increase in the mass of capital are unrelated rather than reciprocal manifestations of the same process.
“But if the same causes which make the rate of profit fall, entail the accumulation, i.e., the formation, of additional capital, and if each additional capital employs additional labour and produces additional surplus-value; if, on the other hand, the mere fall in the rate of profit implies that the constant capital, and with it the total old capital, have increased, then this process ceases to be mysterious. We shall see later [K. Marx, Theorien über den Mehrwert.K. Marx/F. Engels, Werke, Band 26, Teil 2,. S. 435-66, 541- 43. — Ed] to what deliberate falsifications some people resort in their calculations to spirit away the possibility of an increase in the mass of profit simultaneous with a decrease in the rate of profit.
We have shown how the same causes that bring about a tendency for the general rate of profit to fall necessitate an accelerated accumulation of capital and, consequently, an increase in the absolute magnitude, or total mass, of the surplus-labour (surplus-value, profit) appropriated by it. Just as everything appears reversed in competition, and thus in the consciousness of the agents of competition, so also this law, this inner and necessary connection between two seeming contradictions. It is evident that within the proportions indicated above a capitalist disposing of a large capital will receive a larger mass of profit than a small capitalist making seemingly high profits.” (p 224-5)
This law, elaborated by Marx, is important in relation to mature capitalism, for the reasons described earlier. If any such tendency for the rate of profit to fall is nothing more than the other side of the rise in the mass of profit and capital, and if large companies can thereby compensate for any fall in the rate of profit by the concomitant rise in the mass of profit, then in economies dominated by such large companies, the role of the falling rate of profit is negated.
Moreover, this fact, that this lower rate of profit is the other side of the larger mass of profit has practical implications in respect of competition.
“Even a cursory examination of competition shows, furthermore, that under certain circumstances, when the greater capitalist wishes to make room for himself on the market, and to crowd out the smaller ones, as happens in times of crises, he makes practical use of this, i.e., he deliberately lowers his rate of profit in order to drive the smaller ones to the wall.” (p 225)
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