## Friday, 2 October 2015

### Capital III, Chapter 15 - Part 23

The reduction in capital values raises the rate of profit via the means described in Chapter 6. A reduction in the value of constant capital increases realised surplus value, because it lowers end product prices, thereby raising demand and reducing the squeeze on profits from market prices. It raises the rate of profit because any given value of s now represents a larger proportion of C. But, a reduction in the value of variable capital directly increases the produced surplus value, and thereby increases the rate of profit.

The depreciation of the constant capital, and reduction in the variable capital releases capital for the reasons set out in Capital II, Chapter 15. This capital can then enter the money-market reducing interest rates, and thereby stimulating the growth of new capitals, in new lines of production.

However, this process, under capitalism, is not planned or smooth, and so is accomplished via crises. Take some very large capital that has borrowed a large sum to invest in productive-capital, producing X. It does not matter whether it has borrowed this money-capital from a bank, by selling commercial bonds, or by selling shares. It has to pay interest on this money-capital in one form or another. It can limit the payment of dividends, but only at the expense of its share price falling, leaving it open to take over.

Having borrowed this money-capital, and invested in productive-capital, it finds after a year or so, that some new machine has been developed that is twice as efficient as its own machines. As described in Capital I, the effect of this is to reduce the value of its machine, as a result of moral depreciation. The reason is that its machine passes on its value piecemeal as wear and tear, into the commodities, it produces. If it produces 10,000 pieces per year, and lasts for 10 years, then it passes £1,000 per year, or £0.10 into the value of each piece it produces. But, if the new machine also has a value of £10,000, but produces 20,000 pieces a year, it passes on only £0.05 per piece of its value. Competition then means that this is all the old machine can pass on too, but its 10,000 pieces at £0.05, gives it a value of only £5,000.

Capital I, has thereby suffered a capital loss of £5,000. Its money-hoard, built up over 10 years for replacement will accumulate only £5,000, which would require an additional £5,000 of capital to buy the replacement machine. But, even before that, because the money-capital was borrowed, interest will be due on it, as described above. As outlined earlier, therefore, the industrial profit may fall, here may even become negative, if the share going to interest and rent rises.

Suppose, the surplus value per unit was £0.10 divided, £0.05 profit, £0.03 interest and £0.02 rent. The latter two remain unchanged, but the market price of the commodity as a result of the new machine falls by £0.05. If the firm tried to avoid having to go to the money-market again to borrow additional capital, by maintaining its amortisation fund for the machine at its previous level of £1,000 per year, its costs, i.e. its laid out capital would reflect that. Its profit margin would be wiped out. On this basis the firm may well go bust. The bank may foreclose on its loan, bond holders may bring in the liquidators, its share price would fall, leaving it open to take over.

But, the firm's productive-capital can now be bought up at its current price. A new capitalist will buy its machine not at its historic price, but at its current reproduction value of £5,000 or even less. Or, in a takeover, some other firm achieves that simply by buying out the firm's shares at their now reduced level. This new owner will then be able to make a profit out of this capital because its cost of production will have fallen accordingly.  In reality, the historic price paid for the machine, is only of relevance to the individual capitalist, and his fortune, not to the capital itself.  The actual capital has a value determined by its current reproduction cost, and its on that that the rate of profit is calculated. If, the individual capitalist personally goes bust, the capital itself can continue unaffected, in other hands, who buy the firm on the basis of the current value of the capital, not the historic price paid for it by the former owner.

Yet, its clear that this crisis, for the former owner, arises not from the tendency of the rate of profit to fall, but rather from the opposite, from the depreciation of capital values, that acts to cause the rate of profit to rise! As described in relation to Chapter 13, the introduction of the new machine, by doubling productivity, thereby also halves the working-period, causing the rate of turnover of capital to rise, and thereby causing the annual rate of profit to rise along with it.

A falling rate of profit in some spheres slows down the accumulation of capital value, but the same process encourages the growth of new capitals, in new lines of production, producing new use values. But, these new industries, with high rates of profit, thereby grow faster.

“The accumulation of capital in terms of value is slowed down by the falling rate of profit, to hasten still more the accumulation of use-values, while this, in its turn, adds new momentum to accumulation in terms of value.” (p 250)

But, what were once new industries with low organic compositions of capital, and very high rates of profit, whose capital value can thereby grow rapidly, themselves eventually become established industries with high organic compositions, and lower rates of profit. This is the process Marx describes when he writes,

“Capitalist production seeks continually to overcome these immanent barriers, but overcomes them only by means which again place these barriers in its way and on a more formidable scale.

The real barrier of capitalist production is capital itself.” (p 250)