Capital III, Chapter 13 - Part 5

Marx's assumption rests on a view that he rejects in the main body of his theory, which is that the economy can be viewed as some kind of static closed system. On that basis, its true that experience suggests that a limited number of industries/commodities will experience a rising organic composition of capital, and, therefore, a falling rate of profit. But, Marx, as with many of the simplifying assumptions he uses, to set out the basis of his theories, knows full well that this is not the case. Even in his time, not only was capital moving into increasing areas of existing production, but it was itself contributing, along with its fusion with science, to the creation of entirely new industries. Some of those new industries, e.g. production of steam engines, machine tools, railways, electrical production and distribution, and so on, were the equivalents of the technology industries of our day.

The commodities they produced conformed to the typical product life-cycle, whereby production is initially characterised by low levels of demand and supply, high prices and profits, and production based on the use of large amounts of complex labour for product development, skilled labour for production and relatively low levels of mechanisation.

Once this simplifying assumption, adopted by Marx, of a closed system, is dropped, then the assumption, that the organic composition of capital continually rises, falls. In fact, Marx himself makes the point that capitalist production, over the longer term, is characterised by periods when it develops intensively and those when it develops extensively. In the periods when it develops intensively, large numbers of new technologies are developed, which raise productivity, so that output grows rapidly relative to the workforce. But, its also during this period, when productivity rises rapidly, that relative surplus value rises, and also when the rise in productivity reduces commodity prices, including those that comprise the constant capital. Its also in such periods that whole new industries arise with low organic compositions, and high rates of profit. They absorb this rapidly increased mass of profit, and thereby increase the mass of employed labour-power.

In other words, this is a period when the technical composition of capital in existing industries may rise, but when the very causes of that also bring about changes which counter any tendency for the rate of profit to fall.

In the periods of extensive development, much fewer of these new technological innovations are introduced, and instead capital expands simply on the same technical basis – more machines, more material, more labour-power all of the same type and in roughly the same proportions. But, on this basis, there is no real change in the organic composition, and, therefore, no basis for a fall in the rate of profit. No wonder Marx comments,

“We shall see later why this fall does not manifest itself in an absolute form, but rather as a tendency toward a progressive fall.” (p 213)

That, of course, is all before we even consider the fact that, in a global economy, capital is continually finding new reservoirs of labour to exploit at higher rates of surplus value, and as will be demonstrated later, with other consequences for the value of the product of labour in developed economies, that has further ramifications for the rate of profit.

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