But, its clear from this that where an economy is dominated by service industry, rather than manufacturing, the whole basis for the Law's operation ceases to exist, because any rise in productivity, whilst reducing the value of commodities, including those that comprise constant capital, and raising the rate of surplus value, and consequently the mass of profit, does not result in any significant increase in the mass of materials processed, and consequent rise in the value of circulating constant capital, because processed materials form only a small portion of the total value production of the economy.
For example, suppose that the capital is a hotel. As a result of a rise in social productivity, the cost of building hotels falls, and the effectiveness of the machines used by hotel staff also increases. The same amount of fixed capital now provides for a larger hotel, capable of servicing a larger number of occupants, and the more effective machinery enables the existing workers to meet the needs of these occupants. Making a similar comparison we might then have:
Original Capital
£100,000 fixed capital
£10,000 Wages
£10,000 Surplus Value
The hotel has 100 rooms, and the value per room is then 120,000/100 = £1,200.
A number of scenarios are possible. Firstly, it might be that the number of rooms doubles to 200, and there is a corresponding rise in the efficiency of machines used by hotel workers so they can service these 200 rooms. In that case, there is no change in the organic composition of capital, or in the rate of surplus value. The only consequence is that the value of a room falls to £600, and the value of each room, now comprises only half the amount of value of fixed capital, wages and profit as previously was the case. The rate of profit is 10/110 = 9.1%.
Secondly, the rise in social productivity causes the value of labour-power to fall, so that wages fall to £8,000, and surplus value rises to £12,000. In that case, the rate of profit rises to 12/108 = 11.11%.
Thirdly, the rise in social productivity reduces the value of the hotel, but causes no change in the productivity of hotel labour, so that we have:-
£50,000 fixed capital
£10,000 wages
£10,000 surplus value
The number of rooms remains 100, and the value per room falls to £700. But, now, the rate of profit rises to 10/60 = 16.66%, as the organic composition of capital falls.
Fourthly, as Marx points out in Theories of Surplus Value, Chapter 13, the relation between constant and variable capital is a function of the technical composition of capital, not the value composition. So, if, as above, there is no change in the productivity of hotel labour, and the number of hotel rooms remains 100, the same number of hotel workers will be employed to service those rooms. However, Marx points out, if the value of constant capital falls, that means that each capital has capital released, and this released capital can then be used to expand output.
If the cost of building a 100 room hotel falls from £100,000 to £50,000, £50,000 of capital is released. Suppose, then that £40,000 of this released capital is used to add 80 rooms, and £8,000 is used to employ 9 additional workers to service these rooms. In that case, we would have:-
£90,000 fixed capital
£18,000 wages
£18,000 surplus value.
The mass of profit, thereby rises by 80%. The rate of profit is 18/108 = 16.66%.
Finally, if the rise in social productivity causes the value of labour-power to fall, we might have:-
Fixed capital £90,000
Wages £14,400
Surplus Value £21,600
The rate of profit is then 20.69%.
This same kind of scenario exists for all service industries. A lower cost of fixed capital in media production, means that a given amount of capital can employ more fixed capital, and also a greater mass of labour. A greater mass of labour with the same rate of surplus value, means a greater mass of profit, and no reduction in the rate of profit. Or it may be that more highly skilled complex labour is employed with the same effect. But, any rise in social productivity that reduces the value of labour-power, and so raises the rate of surplus value, not only increases the mass of surplus value, as a result of more labour being employed, but also increases the rate of surplus value, and consequently also the rate of profit. Indeed, as Marx sets out in TOSV Chapter 13, this fall in the value of labour-power, also enables more labour and constant capital to be employed, and that in turn results in an increase in the mass of profit produced.
This same situation exists, for example, in relation to service industries such as the provision of telecommunications, or the provision of other utilities such as water, gas and electricity. In each case, because production does not involve the processing of raw materials, but merely involves the provision of some labour service, the consequence is that there is no proportional rise in the value of circulating constant capital, in total production, and no tendency, therefore, for the rate of profit to fall. Indeed, as the rise in social productivity reduces the value of labour-power and raises the rate of surplus value, so there is a tendency for the rate of profit to rise, and the release of capital means that more labour absolutely is employed, so that the mass of surplus value produced, also rises.
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