## Friday, 11 September 2015

### Capital III, Chapter 15 - Part 3

The rate of profit is always less than the rate of surplus value, because the latter is s/v, whereas the former is s/c+v, and all production requires some constant capital. Even an entertainer performs in an arena of some kind. Even where the rate of surplus value is rising, the rate of profit can be falling, if the amount of constant capital is rising at a faster rate.

A falling rate of profit only reflects a falling rate of surplus value if the value of constant capital remains constant or falls relative to the quantity of labour-power that sets it in motion. In other words, if 10 workers, working a 10 hour day, process 10,000 kilos of cotton, with a value of £1,000, the ratio of the value of the constant capital to the quantity of labour-power, will fall, if either a smaller quantity of material is processed (falling productivity), the price of cotton falls (temporary effects of competition or a rise in productivity in cotton production) or if more workers are employed (falling productivity).

In any of these cases, the value of c falls relative to v. It should then mean the rate of profit rises. If instead it falls, this can only be because the amount of surplus value has fallen by a larger amount, which means the rate of surplus value has fallen.

“On the plea of analysing the rate of profit, Ricardo actually analyses the rate of surplus-value alone, and this only on the assumption that the working-day is intensively and extensively a constant magnitude.” (p 241)

In fact, this is a common problem in measuring the rate of profit. The National Income data provides information on the incomes received as wages, interest, profits (dividends), rent and taxes. But, as Marx sets out, in describing the mistake made by Adam Smith, and subsequent economists, this income, (revenue) only comprises the components v +s, of the total value of production. The total value of production, however, is comprised of c+v+s. (See: Capital II, Chapter 18).

Speaking of Smith's mistake, Marx writes,

“His proof consists simply in the repetition of the same assertion. He admits, for instance, that the price of corn does not only consist of v + s, but also of the price of the means of production consumed in the production of corn, hence of a capital-value not invested in labour-power by the farmer. But, he says, the prices of all these means of production resolve themselves into v + s, the same as the price of corn. He forgets, however, to add: and, moreover, into the prices of the means of production consumed in their own creation. He refers us from one branch of production to another, and from that to a third. The contention that the entire price of commodities resolves itself “immediately” or “ultimately” into v + s would not be a hollow subterfuge only if he were able to demonstrate that the commodities whose price resolves itself immediately into c (price of consumed means of production) + v + s, are ultimately compensated by commodities which completely replace those “consumed means of production,” and which are themselves produced by the mere outlay of variable capital, i.e., by a mere investment of capital in labour-power. The price of these last commodity-products would then be immediately v + s. Consequently the price of the former, c + v + s, where c stands for the constant part of capital, would also be ultimately resolvable into v + s. Adam Smith himself did not believe that he had furnished such a proof by his example of the collectors of Scotch pebbles, who, according to him 1) do not generate surplus-value of any description, but produce only their own wages, and 2) do not employ any means of production (they do, however, employ them, such as baskets, sacks, and other containers for carrying the pebbles)...

Now Adam Smith’s first mistake consists in equating the value of the annual product to the newly produced annual value. The latter is only the product of labour of the past year, the former includes besides all elements of value consumed in the making of the annual product, but which were produced in the preceding and partly even earlier years: means of production whose value merely re-appears — which, as far as their value is concerned, have been neither produced nor reproduced by the labour expended in the past year. By this confusion Adam Smith spirits away the constant portion of the value of the annual product.”

The problem cannot be overcome by arguing as Smith and others have done, that c, the materials, machines etc. are themselves the product of labour, which is then broken down into these factor incomes. As Marx demonstrates, the value of those materials, machines etc. itself does not just break down into v +s , but itself comprises constant capital.

Measurements of the rate of profit, based on this National Income data, must always be wrong, therefore, because they do not include the value of c. They are really just estimates of the rate of surplus value. Sometimes, these estimates also take into account the fixed capital stock, (based either on its historic cost or current reproduction cost) but this does not really improve things, because the fixed capital is only one component of the total constant capital, used in production. As outlined earlier, as a proportion of the laid-out constant capital, the fixed capital continually falls, in relation to the circulating constant capital, because one new machine replaces several older machines, whilst the increase in productivity it brings about, causes the quantity of material processed to rise substantially.

Again, given that the data for national output is, therefore, for total laid out capital, and not for the advanced capital, this provides a further distortion of the real situation. It will tend to understate the extent to which the value of advanced circulating capital has declined, because it will not take into consideration the increased rate of turnover of that capital, consequent upon the rise in productivity.

“A fall in the rate of profit and accelerated accumulation are different expressions of the same process only in so far as both reflect the development of productiveness. Accumulation, in turn, hastens the fall of the rate of profit, inasmuch as it implies concentration of labour on a large scale, and thus a higher composition of capital. On the other hand, a fall in the rate of profit again hastens the concentration of capital and its centralisation through expropriation of minor capitalists, the few direct producers who still have anything left to be expropriated. This accelerates accumulation with regard to mass, although the rate of accumulation falls with the rate of profit.” (p 241)

When the rate of profit falls, this acts to reduce the number of new small capitals that are formed. Its in the phase of exuberance, when the rate of the rate of profit is rising fast, that former workers and managers, decide to chance their own arm, often with borrowed capital. Its at these times that members of capitalist families seek out new types of business to enter on their own account. In fact, its this plethora of new small capital that provides the basis for the overproduction that ensues. In periods when the rate of profit is low or falling, there is little incentive for such activity. However, it may be that some workers, thrown out of employment, are led into such activity out of desperation for some form of income. Many become petty-capitalists in name only, scraping a living as window cleaners, gardeners and so on, often with lower incomes than an average worker. That can be seen behind the figures for unemployment in Britain at the moment, and along with it goes low and falling levels of productivity.

At the same time, large enterprises may seek to remedy any resistance to sales of their products by investing more in developing new lines of production, and in ways of reducing their costs.