Wednesday, 9 September 2015

Capital III, Chapter 15 - Part 1

Exposition of the Internal Contradictions of the Law

In the two previous chapters, Marx set out the way that the Law of a Falling Rate of Profit operates as a tendency, and explains why the contradictions inherent in the processes behind the law necessitates that. In this chapter, Marx sets out the consequences of those contradictions, and how they are resolved. The contradictions Marx is referring to are basically these. Firstly, the falling rate of profit necessitates a rising mass of profit. Secondly, the processes that cause a falling rate of profit simultaneously cause a rising rate of profit, because they reduce the value of both constant and variable capital, raise the rate of turnover, release tied up capital, and raise the rate of surplus value.

The discussion over the falling rate of profit is largely based on false premises. When Marx uses the term “Rate of Profit”, he uses it in its capitalist context, i.e. it is what we would call the profit margin, the proportion of surplus value to cost prices of the commodity, or what amounts to the same thing, the annual surplus value as a proportion of the laid-out capital for the year.

Marx states that explicitly, in Theories of Surplus Value, Chapter 16, where he says,

"{Incidentally, when speaking of the law of the falling rate of profit in the course of the development of capitalist production, we mean by profit, the total sum of surplus-value which is seized in the first place by the industrial capitalist, [irrespective of] how he may have to share this later with the money-lending capitalist (in the form of interest) and the landlord (in the form of rent). Thus here the rate of profit is equal to surplus-value divided by the capital outlay."

What is ironic is that Marx's analysis of this “Rate of Profit”, and its falling tendency was designed to refute the catastrophist interpretations of it by Malthus and Ricardo and others. The reason Marx says the concept was important for these previous economists, and for capitalists, is precisely because of their catastrophist interpretation of it, i.e. that it is some kind of Natural Law, which leads inevitably to the collapse of capitalism under its own weight, as the generation of surplus value reaches these supposed limits. Marx thought this was nonsense and says so!

In Theories of Surplus Value, Chapter 17, Marx 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.”

The irony is that those who promote the idea of the falling rate of profit, as the basis of crisis, do so in the same kind of catastrophist manner as did Malthus and Ricardo, against whom Marx was arguing! It is undeniably true that aside from the “countervailing forces” to the falling rate of profit described by Marx in Capital III, Chapter 14, this rate of profit, i.e. the profit margin, must fall for the reasons described. But, Marx and Engels believed that this Rate of Profit used by the capitalists and the political economists was a fraud! In Capital III, Chapter 4, therefore, Engels distinguishes the real rate of profit from this bourgeois counterfeit version. He calls the real rate of profit, the annual rate of profit.

“To make the formula precise for the annual rate of profit, we must substitute the annual rate of surplus-value for the simple rate of surplus-value, that is, substitute S' or s'n for s'. In other words, we must multiply the rate of surplus-value s', or, what amounts to the same thing, the variable capital v contained in C, by n, the number of turnovers of this variable capital in one year. Thus we obtain p' = s'n (v/C), which is the formula for the annual rate of profit.”

And later in Capital III, Chapter 13, Marx and Engels emphasise this point. Marx writes,

“However, the rate of profit, if calculated merely on the elements of the price of an individual commodity, would be different from what it actually is. And for the following reason:”

and Engels adds,

“[The rate of profit is calculated on the total capital invested, but for a definite time, actually a year. The rate of profit is the ratio of the surplus-value, or profit, produced and realised in a year, to the total capital calculated in per cent. It is, therefore, not necessarily equal to a rate of profit calculated for the period of turnover of the invested capital rather than for a year. It is only if the capital is turned over exactly in one year that the two coincide.]”

And, of course, the latter will almost never be the case, and the same causes of a rise in the organic composition of capital bring about an equal rise in the rate of turnover.

Whilst it may be the case that the Rate of Profit (profit margin) may fall as a result of a rise in the organic composition of capital, the same process means that it must be the case that the annual rate of profit rises, because any rise in the organic composition of capital brings about the same proportional increase in the rate of turnover of capital. Because that increase in the rate of turnover of capital results in the release of capital (alongside any rise in the mass of surplus value due to the rise in productivity, reduction of capital value, rise in rate of surplus value) it must result in a rise in the annual rate of profit.

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