Capital III, Chapter 50 - Part 16

As Marx describes, it is the need to replace the physical capital that is the determinant, and the level of output, and consequently surplus product, then varies in accordance with changes in productivity. If previously 500 units were produced, and now only 400 are produced, in the same time, productivity has fallen by 20%, but consequently, the individual value of each unit has risen by 25%.

If the previous output was the product of 500 hours of labour, then each unit had a value equal to 1 hour of labour-time. In that case, the constant capital had a value equal to 100 hours, the variable capital to 200 hours, and the surplus value to 200 hours. The total value was equal to 500 hours of labour-time, but not because it was a summation of the value of 100 hours of constant capital, 200 hours of variable capital and 200 hours of surplus value.

Rather it had such a value, because the constant capital has a value of 100 hours, equal to the labour-time required for its reproduction, and because 400 hours of additional new labour was expended, which resulted in the new production.

If productivity falls, so that only 400 units are produced, these 400 units have required the expenditure of as much labour-time as previously were expended to produce 500 units. In other words, these 400 units have the same value, as previously 500 units possessed. Clearly then, the value of each individual unit is equal to 125% its previous value.

In that case, the value of c rises from 100 hours to 125 hours, v to 250 hours. The surplus product has fallen from 200 units with a value of 200 hours to 100 units with a value of 125 hours. This reflects the division of the current social production and social labour-time required to ensure social reproduction on the same scale.

If we calculate the rate of profit, on this basis as Marx does, as s/c + v, we then obtain 125/(125 + 250) = 125/375 = 33.3%. This is quite clearly different than had we calculated the rate of profit on the basis of historic costs. On that basis the price of c + v, determined by the level of productivity from the previous year's harvest was 100 + 200 = 300. The output of 400 units this year, still has a value equal to 500 hours, the amount of social labour-time expended, which then leaves a surplus value of 500 – 300 = 200. This gives a rate of profit of 200/300 = 66.6%!

Its clear then how this use of historic prices distorts the true picture of the allocation of the available social product and social labour-time, required to ensure social reproduction. In so doing, in conditions of falling social productivity, it results in the above distortion, whereby the extent of social surplus value and rate of profit is exaggerated, and in the more normal situation, of rising social productivity, it understates the extent of social surplus value, and rate of profit. It thereby overstates past rates of profit, and understates current rates of profit, which adds to the delusion of a falling rate of profit.

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