Capital III, Chapter 13 - Part 13

The various theories put forward to explain a falling rate of profit, by previous economists, therefore, were wrong and superficial, because they merely described the effects of competition, rather than the underlying relations and processes. It may, for example, be true that commercial enterprises obtain a greater mass of profit, by adopting lower profit margins, to promote higher levels of sales, or that the rate of profit, in one industry, is higher than another, because of various peculiarities, and so on. But, this does not explain why an average rate of profit should be at some specific level, around which these other rates of profit revolve, and why it is that, even if all of these other factors are removed, a rising mass of capital should also have a tendency to reduce the average rate of profit.

“The law that a fall in the rate of profit due to the development of productiveness is accompanied by an increase in the mass of profit, also expresses itself in the fact that a fall in the price of commodities produced by a capital is accompanied by a relative increase of the masses of profit contained in them and realised by their sale.” (p 225-6)

The higher levels of social productivity means that each individual commodity absorbs absolutely less value of constant and variable capital.  (This same process causes the proportion of value attributable to fixed capital and labour to fall, but for the proportion of value attributable to materials, i.e. circulating constant capital to rise.)

That can be seen in the following table, which shows the effect of rising productivity brought about by continually improved technology of fixed capital.  It shows that the price of individual commodities falls by 66.6%, the proportion of the price accounted for by fixed capital and labour falls, whilst the proportion accounted for by materials rises sharply.  The proportion accounted for by surplus value falls, despite the fact that the rate of surplus value increases substantially.

Year	Fixed Capital	Material	Variable Capital	Surplus Value	Total Output	Price Per Unit
1	6.67	26.67	33.33	33.33	3000	1.00
2	4.55	31.82	26.67	36.97	5250	0.84
3	3.07	38.97	19.83	38.13	9520	0.68
4	2.11	47.66	14.05	36.18	16972	0.56
5	1.49	55.38	10.39	32.75	27922	0.48
6	1.09	62.38	7.81	28.72	42785	0.43
7	0.84	68.89	5.86	24.41	61498	0.39
8	0.67	73.63	4.65	21.05	82419	0.36
9	0.55	77.29	3.82	18.34	105270	0.35
10	0.46	80.53	3.15	15.86	129994	0.33

“This causes the price of the individual commodity to fall. But the mass of profits contained in the individual commodities may nevertheless increase if the rate of the absolute or relative surplus-value grows. The commodity contains less newly added labour, but its unpaid portion grows in relation to its paid portion. However, this is the case only within certain limits.” (p 226)

In other words, as production and productivity develops on a massive scale, the amount of unpaid labour to paid labour, i.e. the rate of surplus value, will expand, but if the increase in output is large enough, even this higher proportion of surplus value will fall as a proportion of the value of each individual commodity unit.

“The mass of profit on each individual commodity will shrink considerably with the development of the productiveness of labour, in spite of a growth in the rate of surplus-value. And this reduction, just as the fall in the rate of profit, is only delayed by the cheapening of the elements of constant capital and by the other circumstances set forth in the first part of this book, which increase the rate of profit at a given, or even falling, rate of surplus-value.” (p 226)

Again, this seems to contradict the notion of a growing mass of surplus value, but, just as a falling rate of profit was the reverse of a growing mass of profit, so this fall in the proportion of profit in the individual commodity unit is just the other side of the massive increase in the quantity of units produced.

At 3000 units, the total surplus value above was £1,000, when it comprised 33.33% of the individual commodity value.  Even though, it falls to 15.86% of the much lower individual commodity value, when the output rises to 129994 units, this amounts to a much greater mass of surplus value, i.e. 129994 x 5.2338 = £6803.62

The price of commodities continues to fall as a result of this continual rise in productivity, even if the price of some elements of the constant capital rises. For example, even if the price of cotton rises, the price of yarn will still tend to fall, because the value of spinning machines will continue to fall, and not only will the value of labour-power continue to fall, but that labour-power will continue to become more productive so that a given quantity of labour-power will process an increasing quantity of cotton.

It should be taken into consideration, here, that Marx has moved from an analysis of the tendency for the rate of profit to fall at the level of social capital, to one at the level of the individual industry/commodity. This point, which is usually missed, is important because, as previously indicated, assumptions which may be valid at the level of the industry/commodity are not valid at the level of social capital. For example, we can see that, at the level of the individual commodity/industry, there is every reason to assume a rising technical composition of capital, which leads to a rising organic composition. We would then only have to concern ourselves with the effects of a cheapening of the constant capital, relative to the variable capital, and of changes in the rate of surplus value, in considering the effect on the rate of profit in that industry.  We would also have to consider the concomitant changes in the rate of turnover of the capital, if we were to consider the changes in the annual rate of profit, rather than the rate of profit.

But, there is no reason to make this assumption at the level of the social capital. New industries/commodities are developed all the time, and far more so in periods of rapid technological change. There is no reason to assume that these industries/commodities will have the same technical or organic composition of capital as existing industries/commodities. On the contrary, there is every reason to believe they will have a much lower technical and organic composition, which will in turn act to reduce the technical and organic composition of the total social capital. Marx makes out this case later, to show that this fact alone can neutralise the tendency for the rate of profit to fall.

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