Capital III, Chapter 13 - Part 15

As Marx and Engels point out, the bourgeoisie calculate the rate of profit on the basis of the laid out capital, rather than the advanced capital, because this invariably produces a lower rate of profit. In the national accounts, of capitalist economies, the data is provided on the same basis, of the laid out capital, i.e. the cost prices, and so any calculation of the rate of profit also replicates this error, and grossly understates both the real annual rate of profit, and the rise in that rate resulting from the continual rise in the rate of turnover. Unfortunately, most calculations of the rate of profit, even by Marxist economists, are undertaken on this basis, and thereby replicate the error. (See:The Rates of Profit, Interest and Inflation)

Marx then makes another important point, in relation to the calculation of the rate of profit, which is that the rate of profit must be understood as a rate based on the advanced productive-capital. The rate of profit cannot be meaningfully understood on the basis of the money-capital, or the historic prices paid for the elements of productive-capital, because, for Marx, the rate of profit is nothing other than an index of the self-expansion of the productive-capital itself.

“The rate of profit must be calculated by measuring the mass of produced and realised surplus-value not only in relation to the consumed portion of capital reappearing in the commodities, but also to this part plus that portion of unconsumed but applied capital which continues to operate in production.” (p 229)

As productivity rises, the value of each individual commodity unit falls. It contains less labour, both materialised labour (constant capital) and living labour (variable capital plus surplus value). This is so even as the total mass of commodities produced, and so the total value of this mass, itself rises. But, profit is only a part of the new value added by living labour. If the amount of living labour in each commodity unit falls, then so does the amount of profit. This tendency is offset by the fact that the rate of exploitation rises, but only within limits. In other words, if the amount of value added by living labour in each unit falls from 5 minutes of labour-time (say £0.05) to 3 minutes of labour-time (£0.03) then the mount of profit per unit could still rise, if the rate of exploitation rises from 40% (£0.02 per unit) to 70% (£0.021 per unit).

But,

“In all these cases — which, however, in accordance with our assumption, presuppose an increase of constant capital as compared to variable, and an increase in the magnitude of total capital — the individual commodity contains a smaller mass of profit and the rate of profit falls even if calculated on the individual commodity. A given quantity of newly added labour materialises in a larger quantity of commodities.” (p 229)

But, as Marx points out, the mass of profit grows if more labour-power is employed, or if the same quantity is employed at a higher rate of surplus value. But, the process which leads to a higher organic composition of capital, is also the same process which sees the accumulation of capital. Although the value of the variable capital falls, relative to the constant capital, the absolute quantity of and value of the variable capital continues to expand. It is this fact which leads to the increase in the mass of profit, and the accumulation that flows from it.

This is particularly the case in respect of the total social capital. A particular capital may reach a stage where labour is replaced on such a scale that the quantity employed falls absolutely. But, the profits generated lead to the expansion of the total social capital, in other spheres, where additional labour-power is then employed. That is why it is frequently the case that even when unemployment is rising, employment, i.e. the actual number of people employed, is also rising, as part of the normal expansion of capital.

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