## Monday, 14 September 2015

### Capital III, Chapter 15 - Part 5

But, it is not the rises or falls in interest or rent that explains the fall in the rate of profit. They can only explain the different distribution of the surplus value. An examination of what determines the rate of interest and rent is provided by Marx later in Capital III, and in Theories of Surplus Value.

“The mutual variation of p1, i, and r is merely a varying distribution of s among different classes. Consequently, p1/C, i/C, or r/C, the rate of individual industrial profit, the rate of interest, and the ratio of ground-rent to the total capital, may rise in relation to one another, while s/C, the general rate of profit, falls. The only condition is that the sum of all three = s/C.” (p 243)

Take two situations where the organic composition of capital, and, therefore, rate of profit, is different.

1) c 1000 + v 1000 + s 1000.

The overall rate of profit here s/C is 50%. Suppose that of the £1,000 of surplus, £100 is paid to a money-capitalist as interest, on the £2,000 of capital here advanced. That gives a rate of interest of 5%.

The capitalist will also have to pay rent. This is true even if the capitalist owns the land they use in their production of whatever type. To own the land, they will have to have bought it, and as will be seen later in Capital III, the price of land is only capitalised rent. The capitalist who owns the land they use, therefore, implicitly pays this rent to themselves.

Suppose, the rent is £200. Then, as a proportion of the capital advanced it is equal to 10%.

That leaves £700 as industrial profit, if we discount any payment of taxes. So, this rate of profit is then 35%. But, its clear that whilst the total surplus value remains fixed here at £1,000, the amount of interest, rent and profit can vary within it. Suppose the demand for money-capital in the economy rises so that interest rates rise to 10%. Then £200 will have to be paid in interest. If rents remain the same, the share of profit falls to £600, reducing the rate of profit to 30%. The same would be true in reverse of interest rates fell. Similarly, if rents increased, the share of industrial profit would fall and vice versa.

2) c 6000 + v 2000 + s 2000

Here capital has been accumulated and the organic composition of capital has risen from 1:1 to 3:1. The rate of surplus value remains the same, at 100%, and the amount of surplus value has doubled, along with the variable capital. If we look at the amounts of profit, based on the initial rates, we see that the general rate of profit has fallen from 50% to 25%, even though the mass of profit has doubled.

On the basis of the original 5%, rate of interest, the capital advanced is now £6,000 + £2,000 = £8,000, giving £400 in interest. That is four times the original figure, as four times as much money-capital has been borrowed.

If the amount of rent remained constant, at £200, that would leave £1400 for industrial profit. The rate of industrial profit is then 1400/8000 = 17.5% So, although the mass of industrial profit has risen by 40%, the rate of industrial profit has been more or less halved.

If the rent increased in proportion to the size of capital, it would be £800. The rate of profit then falls to 10%, and its mass is only 14.29% more than it was, despite the mass of surplus value doubling.

“Furthermore, Ricardo's assumption that originally industrial profit (plus interest) contains the entire surplus-value is historically and logically false. It is rather the progress of capitalist production which 1) gives the whole profit directly to the industrial and commercial capitalists for further distribution, and 2) reduces rent to the excess over the profit. On this capitalist basis, again, the rent grows, being a portion of profit (i.e., of the surplus-value viewed as the product of the total capital), but not that specific portion of the product, which the capitalist pockets.” (p 243)