Capital III, Chapter 13 - Part 2

Marx begins by describing the law in precisely this way. He sets out a situation where the rate of surplus value is given as 100%, and the length and intensity of the working day is fixed. On this basis, the varying rate of profit across five different industries, with varying organic compositions, is calculated.

If,

c = 50, and v = 100, then p' = 100/150 = 66⅔%;
c = 100, and v = 100, then p' = 100/200 = 50%;
c = 200, and v = 100, then p' = 100/300 = 33⅓%;
c = 300, and v = 100, then p' = 100/400 = 25%;
c = 400, and v = 100, then p' = 100/500 = 20%. 

“This is how the same rate of surplus-value would express itself under the same degree of labour exploitation in a falling rate of profit, because the material growth of the constant capital implies also a growth — albeit not in the same proportion — in its value, and consequently in that of the total capital.” (p 211-12) 

The point made here by Marx that what is involved is a growth in the technical composition of capital, i.e. in the quantity of material processed by a given quantity of labour, is important. The basis of the rise in the organic composition is an improvement in productivity, brought about by improvements in technology and technique. Better machines raise labour productivity. A spinning machine with 36 spindles instead of 4 will spin 9 times as much cotton, but it will still only require one worker to mind it. The worker, therefore, produces 9 times as many use values in a given amount of time as they did previously.

Suppose previously the situation was this.

Machine £1,000 with 10% wear and tear.

Cotton £1,000

Labour-power £1,000

Surplus Value £1,000.

So, c (100 + 1,000) 1100 + v 1000 + s 1000 = 3100.

The rate of profit is the surplus value divided by the capital advanced. Because the machine has to be wholly present, all of its value is advanced. So, 1000/3000 (1,000 + 1,000 + 1,000) = 33.3%.

Now if we assume the new machine also costs £1,000 we have:

c (100 + 9,000) 9100 + v 1000 + s 1000 = 11,100.

The capital advanced is £1,000 machine, £9,000 cotton, and £1,000 labour-power = £11,000.

The rate of profit is then 1,000/11,000 = 9.1%.

In fact, the situation is not really this straightforward. Some economists have wrongly presented Marx's theory of the falling rate of profit as being about the increase in the quantity and value of fixed capital relative to the labour employed. This is false. In fact, Marx says the opposite. According to Marx, it is not just labour-power that falls relative to the circulating constant capital, i.e. the material processed, the fixed capital falls relative to it too.

That is obvious in the example above. A spinning machine with 36 spindles is capable of replacing 9 machines with only 4 spindles. It reduces the number of workers, in this case, as a result of first reducing the number of machines. In fact, in value terms, here, the reduction in the value of the fixed constant capital is likely to be greater than the reduction in the value of the variable capital, because its likely to be the case that the technological improvements that make it possible to produce a machine with 36 rather than 4 spindles, will also have reduced the cost of producing the machine as well. That is before taking into consideration that this more technologically advanced machine may require higher skilled labour to operate and maintain it.

Previously then, we might have had 9 machines costing £9,000, minded by 9 workers paid wages of £9,000, and producing surplus value of £9,000. Assuming that the new technology is applied generally across the industry, this is replaced by a single machine costing £1,000, minded by 1 worker, producing a surplus value of £1,000. Its not the rise in the fixed capital that constitutes the rise in the organic composition, but the rise in the quantity of material now processed. Marx described this in Chapter 6, where he points out that because the fixed capital is produced by industry, improvements in productivity cause its value to continuously fall. So, not only does one machine replace many, causing the quantity of fixed capital to fall relatively, but rising productivity reduces the value of fixed capital as well. By contrast, the materials processed are more frequently the product of agriculture and other primary production, where improvements in productivity are more difficult to obtain in the short term.

In fact, for this reason, it is more difficult to increase the supply of materials in response to such technological developments, which cause a rapid increase in demand, and so the market prices of those materials frequently shoot up, way beyond their price of production. That was one cause of crises that Marx discussed in Chapter 6.

Its not just that improvements in technology mean that one machine replaces many. If fewer machines are required to process the same or even greater quantity of material, then the factories in which this smaller number of machines and workers are situated can also be smaller. The epitome of this was the quip in the 1990's, as developments in microprocessors proceeded, that this or that technology company had been so successful that they were moving to smaller premises.

Back To Part 1

Forward To Part 3