Tuesday, 26 July 2016

Capital III, Chapter 41 - Part 2

Provided the additional capital produces more than 1 Kilo, the total surplus profit increases. But, because of falling marginal productivity of capital, the rate at which it increases continually diminishes.

“Thus the average surplus-profit of a capital invested in B = 90% on the capital, whereas it was = 120% for the first outlay of capital. But the total surplus-profit increases from 1 qr to 1½ qrs, or from £3 to £4½. The total rent — considered by itself rather than in relation to the doubled magnitude of the advanced capital — has risen absolutely. The differences in rents from various soils and their relative proportions may vary here; but this variation in differences is a consequence, not cause, of the increase in rents in relation to one another.” (p 688)

Fourthly, where additional investments in the better soil results in a rising marginal productivity of capital, this is as though some better soil type than D was brought into cultivation, or in the case of investment in land type C, producing more than it currently produces.

With a rising marginal productivity of capital, any investment, in land other than A, will cause rent to rise by proportionately more than the increase in investment. It will, however, create a proportionately larger increase in rent where it occurs on D rather than C, and C rather than B. The same applies where the same increase in output is produced with a smaller additional capital. For example, if £2 rather than £2.50 is additionally invested in D, but still produces an additional 4 Kilos, or more.

“This case is not quite identical with the former one, and the distinction is important in all investments of capital. For instance, if 400 yields a profit of 40, and 200 employed in a certain form yields a profit of 40, then the profit has risen from 10% to 20%, and to that extent it is the same as though 50 employed in a more effective form yields a profit of 10 instead of 5. We assume here that the profit is associated with a proportional increase in output. But the difference is that I must double the capital in the one case, whereas in the other, the effect I produce is doubled with the capital employed hitherto. It is by no means the same whether I produce: 1) the same output as before with half as much living and materialised labour, or 2) twice the output as before with the same labour, or 3) four times the former output with twice the labour. In the first case, labour — in a living or materialised form — is released, and may be employed otherwise; the power to dispose of capital and labour increases. The release of capital (and labour) is in itself an augmentation of wealth; it has exactly the same effect as though this additional capital has been obtained by accumulation, but it saves the labour of accumulation.” (p 688-9)

If a capital of £100 produces twice what it did previously, this additional output is produced without any accumulation of capital. Any capital that has been accumulated, and would have been so used, is thereby saved, and can be used for other purposes. So, if demand is such that this additional supply can be absorbed, it is met without the advance of any additional capital. But, if the market cannot absorb more than the original level of output, there is no point in producing more. In that case, £50 of the capital can be released, whilst still producing the required level of output. This £50 of capital, comprising both constant and variable capital, can then be used in other industries.

However, it might be the case that the increase in the productivity of the capital can only be achieved by producing on an extended scale, so that it only arises on the back of an additional investment of capital. So, if instead of £100 of capital being invested, £200 is invested, the output may then not just double but quadruple. But, this depends upon the market being able to absorb this large increase in supply.

For any individual capitalist, so long as the price of production remains constant, a reduction in input costs, either of constant capital or variable capital, reduces their cost price, and thereby increases their profit. But, as Marx set out previously, any individual capital will only invest in new fixed capital where its cost is less than the paid labour it replaces.

It always appears then that the employment of constant capital in the shape of machines, is cheaper than the employment of labour, even though ultimately the machines produce no surplus value for capital, as a whole, whereas the labour does. £100 of capital in the shape of wear and tear of machines adds £100 of value to the output, but if this £100 is used to employ 5 workers, then with a 100% rate of surplus value, these 5 workers create £200 of new value, added to the value of the output.

Marx then says,

“Furthermore, as regards the cost of the commodities from the viewpoint of the capitalist, there is also this difference, that of the £100 constant capital only the wear and tear enters into the value of the commodity in so far as this money is invested in fixed capital, whereas the £100 invested in wages must be completely reproduced in the commodity.” (p 690)

But, this doesn't seem to be correct. Marx's requirement is that a machine is profitable for a capitalist to introduce if it costs less than the paid labour it replaces. However, this must surely be the paid labour it replaces over its own lifetime. For example, a machine that costs £10,000, and has an expected lifetime of ten years would be profitable to introduce provided the paid labour it replaces over its lifetime was more than £10,000, or £1,000 per year. If wages are £250 p.a. and it replaces 5 workers, it is then profitable to introduce, because, over ten years, it will have saved £12,500 in wages, at a cost of just £10,000.

In terms of the costs that must be reproduced, out of the price of the commodity, therefore, each year, it is the wear and tear of the fixed capital, and this will be less than the saved wages, but not to the degree that Marx suggests here.

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