Finally, as I have pointed out previously, when Marx talks about the Law of the Tendency for the Rate of Profit to Fall, he is talking about the rate of profit calculated on the basis of the laid-out capital, or in other words, the profit margin. As he says, in Theories of Surplus Value, Chapter 16,
"{Incidentally, when speaking of the law of the falling rate of profit in the course of the development of capitalist production, we mean by profit, the total sum of surplus-value which is seized in the first place by the industrial capitalist, [irrespective of] how he may have to share this later with the money-lending capitalist (in the form of interest) and the landlord (in the form of rent). Thus here the rate of profit is equal to surplus-value divided by the capital outlay."
Indeed, its because of this that the increase in productivity, which results in a greater proportion of raw material in the value of the final product, plays such a significant role in causing this rate of profit/profit margin to fall. If, on the other hand, we examine the general annual rate of profit, the situation is different, because the average rate of profit, is based upon the annual rate of profit, and the annual rate of profit, is the total surplus value calculated as a proportion not of the laid-out capital, but of the advanced capital. The very fact, of a rise in social productivity, which is the basis of the Law of The Tendency for the Rate of Profit to Fall, is simultaneously, not only the basis of the countervailing forces to that law, but is also the basis of a rise in the rate of turnover of capital, which is the cause of a rise in the annual rate of profit, and so too of the average annual rate of profit.
In fact, in Capital III, Chapter 14, where Marx sets out a series of "countervailing forces" to his Law of The Tendency For The Rate of Profit To Fall, he does not mention, at all, the rise in the rate of turnover as such a countervailing force, which is yet another obvious indication, that his law is in relation to the rate of profit/profit margin p/k, and not the annual rate of profit, s x n/C. Marx is clear that his law is based upon a rising proportion of material value in final output, but, as he sets out at length, in Capital II, the effect of rising productivity resulting from more, or more effective fixed capital, is to leave the amount of value advanced for materials the same or even lower.
For, example, suppose that a linen producer must produce 1,000 metres in a working period, before sending it to market. If if takes 10 weeks, to produce this 1,000 metres, that determines the length of the turnover period, and if we ignore the circulation time, it means that in a 50 week year, the circulating capital turns over 5 times. If this producer introduces a second machine, or introduces a replacement machine that is twice as effective, the 1,000 metres is now produced in just 5 weeks, so that now the capital turns over 10 times during the year. But, the amount of capital advanced for the yarn required to produce the 1,000 metres of linen remains the same, and will even be less if the rise in social productivity reduces the value of yarn along with other commodities. So, again its clear that Marx's Law, based upon the rising proportion of material value, applies to the rate of profit/profit margin, p/k, and not to the annual rate of profit, s x n/C, because the effect of technological improvement, and a rising rate of turnover, is to cause this latter rate of profit to rise, not fall!
In fact, in Capital III, Chapter 14, where Marx sets out a series of "countervailing forces" to his Law of The Tendency For The Rate of Profit To Fall, he does not mention, at all, the rise in the rate of turnover as such a countervailing force, which is yet another obvious indication, that his law is in relation to the rate of profit/profit margin p/k, and not the annual rate of profit, s x n/C. Marx is clear that his law is based upon a rising proportion of material value in final output, but, as he sets out at length, in Capital II, the effect of rising productivity resulting from more, or more effective fixed capital, is to leave the amount of value advanced for materials the same or even lower.
For, example, suppose that a linen producer must produce 1,000 metres in a working period, before sending it to market. If if takes 10 weeks, to produce this 1,000 metres, that determines the length of the turnover period, and if we ignore the circulation time, it means that in a 50 week year, the circulating capital turns over 5 times. If this producer introduces a second machine, or introduces a replacement machine that is twice as effective, the 1,000 metres is now produced in just 5 weeks, so that now the capital turns over 10 times during the year. But, the amount of capital advanced for the yarn required to produce the 1,000 metres of linen remains the same, and will even be less if the rise in social productivity reduces the value of yarn along with other commodities. So, again its clear that Marx's Law, based upon the rising proportion of material value, applies to the rate of profit/profit margin, p/k, and not to the annual rate of profit, s x n/C, because the effect of technological improvement, and a rising rate of turnover, is to cause this latter rate of profit to rise, not fall!
On the one hand, the rise in the importance of service industries acts to mitigate the rise in the rate of turnover, and so the rise in the average annual rate of profit. On the other it emphasises it. It mitigates it wherever, the rise in productivity in a service industry has no impact on raising the rate of turnover of the capital. If we take the example of the hotel, the fact that 200 rooms rather than 100 rooms are provided for, using the same amount of capital, does not raise the rate of turnover of that capital. In the case of a manufacturer, if productivity doubles, twice the quantity of materials are processed in a given amount of time. That is why the laid out capital rises. However, the same fact, means that the quantity of output required for any given working period, is now produced in half the time, so the working period halves, and consequently the rate of turnover of the capital increases. That reduces the amount of capital that is advanced, and so raises the annual rate of profit. But, that is not the case with the hotel, because the rise in productivity does not halve the time that the hotel guests stay before paying. The rise in productivity enables twice as many guests to stay during a given period of time, but the value of a room halves. The function of rising productivity here, would be that technological developments such as the Internet, and electronic payments, means that when the guests do pay, those payments are processed more quickly, than were they to pay by cash or cheques, which then had to be taken to the bank, processed, and so on.
But, the situation is different with other service industries. A manufactured product, can generally only be consumed by one person. A chocolate bar, for example, can only be eaten once. There are, of course, consumer durables. A car, can be used by one person, who then, after a number of years, sells it second-hand to someone else. But, here, the first owner consumes the use value of the car during the period they own it. All that occurs here is that they do not consume all of the use value of the car, and what they sell to the next owner is the residual use value. There are some commodities for which even this does not apply. These are what economists call public goods. They can be consumed simultaneously by a number of people. A bridge across a river, for example, can be used by thousands of motorists without any detriment to their usage, and without any additional cost.
The same is true of some services. If we take an example I have used several times before, a football team's performance does not diminish as a consequence of being viewed by 20,000 spectators rather than just 1. On the contrary, it is enhanced by the fact of a larger crowd, creating more atmosphere. Indeed, here, the value created by the labour of the players, itself becomes a function of the quantity of spectators watching the match simultaneously. The football club, if anything, will charge more for a ticket, if the team's matches are drawing large crowds. The labour is then complex labour, and the degree of its complexity, compared to simple labour is determined by the size of the average crowd, and price they are prepared to pay for a ticket.
Here, the role of technology becomes extremely significant. A rise in social productivity that reduces the cost of producing stadia, for example, can facilitate larger stadia that enables bigger crowds, which means that the value produced by the labour is increased. But, similarly, technology, by enabling the game to be filmed, and then shown on TV, and now to be streamed by satellite and Internet, across the globe, expands the number of consumers exponentially, without any additional labour being required. It is, in effect, a means of turning over the capital advanced for the production of the football ground, and of players wages, far more quickly.
A similar thing applies with other such service industries, that now constitute multi-billion pound markets. In the days of the Music Hall, a singer, dancer or comedian could only perform for a given number of people per night. Television, made that number limited only by the number of people with a TV, and now the Internet makes it more or less limitless. Yet, in neither case, does this reduce the value produced by the labour, because the product of this labour is not divisible. A teacher who stands in front of a class of students creates new value by their labour. They do so by creating a use value, education, but this use value, is in no way diminished by being consumed simultaneously by 20 students, as opposed to just 1. And, today, the Internet enables lectures by the world's top teachers and lecturers to be sold across the globe, along with university courses from some of the top universities. The fact, that some of these courses, and lectures might be sold at lower prices, is only an indication of applying a lower market price, in order to draw in a much larger number of consumers, not of any reduction in value as a result of selling the output on a larger scale.
In real terms, the cost of watching a film on Netflix today is much less than the cost of going to the cinema a couple of decades ago, or of hiring a DVD, or before that a video. But, the number of people who can now do so, via the Internet is much greater, so that the total amount of value obtained by the film company is much greater, and without all of the fixed capital required to build cinemas, produce DVD's or videos, or stores to sell and rent them. Once again, in essence, the film company is able to turnover the capital it advanced to produce the film, and pay the wages of the actors etc. in much less time, and this higher rate of turnover of its capital raises the annual rate of profit, which thereby also raises the average annual rate of profit of the economy.
There are some forms of service provision where that is not the case. A rise in productivity does not increase the number of clients a prostitute may have in a given period of time, for example. But, as in other areas of the economy, it does not prevent them undertaking other forms of sex work, which are opened up by these changes, for example in the production of Internet pornography and so on. In fact, depending upon the service that any client might want, the Internet, and interactivity could be said to enable numerous clients to be serviced simultaneously. Similarly, the use of the Internet, means that doctors can see more patients using online video, which is opening up a whole new market via services such as Push Doctor, and Babylon. These developments do not replace existing labour with technology, but utilise technology to enable existing labour to provide services on a wider scale, and without any additional consumption of circulating constant capital, and so without any change in the organic composition of capital, or affect on the rate of profit.
And, as Marx sets out in Capital I, talking about the effect of machinery on raising the rate and mass of surplus value, and in reducing the value of the commodities that comprise the constant capital, and thereby facilitating more capital accumulation, although the amount of labour employed falls relative to output, it brings about an absolute increase in the amount of labour employed, and so an absolute increase in the amount of surplus value produced. In a whole series of industries, the amount of labour actually employed is much less than would theoretically have been employed to produce the output on the basis of previous technology. But, that theoretical reduction is irrelevant, because without the current technology those industries either would not exist, and so would not have employed any labour, or else they would only have been able to produce a much smaller quantity of output, with much higher unit values, for the commodities produced, which would only have been available as luxury consumption for the rich or affluent, and so would have employed only a fraction of the actual current numbers of workers involved in their production.
And, as Marx sets out in Capital I, talking about the effect of machinery on raising the rate and mass of surplus value, and in reducing the value of the commodities that comprise the constant capital, and thereby facilitating more capital accumulation, although the amount of labour employed falls relative to output, it brings about an absolute increase in the amount of labour employed, and so an absolute increase in the amount of surplus value produced. In a whole series of industries, the amount of labour actually employed is much less than would theoretically have been employed to produce the output on the basis of previous technology. But, that theoretical reduction is irrelevant, because without the current technology those industries either would not exist, and so would not have employed any labour, or else they would only have been able to produce a much smaller quantity of output, with much higher unit values, for the commodities produced, which would only have been available as luxury consumption for the rich or affluent, and so would have employed only a fraction of the actual current numbers of workers involved in their production.
In all of these ways, the shift towards service industries, makes Marx's Law of the Tendency for the Rate of Profit to Fall, defunct, because it is a law based upon rising social productivity, which causes the proportion of materials in the value of final output to rise, and the processing of materials other than the use of auxiliary materials forms no part of these service industries. For remaining manufacturing industry, the Law may continue to operate, but given that a large part of the value of labour-power is now determined by the value of those services that workers consume, rather than by the actual consumption of commodities, the effect of the falling value of services on the value of labour-power, and consequent rise in the rate of surplus value, is likely to be more significant. But, even were the Law to continue to operate to a significant degree in relation to manufacturing, that would itself be largely irrelevant, because manufacturing only accounts for around 20% of total value and surplus value production in modern economies.
The determining factor is the rate of profit in service production, and because the rate of profit, and prices of production, in manufacturing, is itself a function of the annual average rate of profit, it is again that rate of profit in service production that is decisive.
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