Marx proceeds on the basis of this last scenario, whereby c and v are employed in the same physical proportions, and where the prices of each rise by the same amount. He takes the situation in respect of the total social capital, so as to equate the total value with the total price of production. So, he says,
“Let the value of the product of a capital £80 c + £20 v be £120. Considering capital as a whole, the value of the product and its cost-price coincide, for the difference is equalised out for the aggregate capital [of the country].” (p 277)
Bear in mind that when Marx refers to “cost-price” here, he means price of production (k + p), as defined in Capital III, and not cost-price as defined there, i.e. k, or c + v. The example above shows that where the price of c + v rises by 25%, the consequence is that the value of the product falls, from 150 to 130. The reason for this is that less labour is employed (40 units rather than 50 units), and so less new value is created. When talking about product here, we mean the the output. The value of the output falls, but because the quantity of output falls, the value of each unit of output rises. The value of output falls from 150 to 130, but the quantity of output falls by 20%. So, if initially 50 units were produced, the value of each unit was £3. Now only 40 units are produced, and the value of each unit rises to £3.25.
Marx proceeds on the basis that the same quantities of c and v are employed. Using our example, that means that 50 units of c and v are employed, but the value of these would now be c 62.5 + v 62.5. On the assumption that 50 units of labour produced £100 of new value, and this has not changed, the surplus value amounts to £37.50 (£100 - £62.50). That gives a total product of £162.50. The rate of profit is 30%.
This is a different conclusion to that arrived at by Marx, in his example. He has the price of c and v rising by 10% from £80 to £88, and from £20 to £22. That gives a total capital of £110. But, Marx assumes that the value of the total social product remains constant at £120. Its clear that this cannot be right. On the basis of Marx's example, the employed labour produced £40 of new value, divided 20 v + 20 s. If the same mass of labour is employed, this same amount of new value is created, but now divided 22 v + 18 s. In that case, the total value of the product would be 88 c + 22 v + 18 s = £128.
Th editors, at the IML offer an explanation of this discrepancy in Note 87 on page 277. However, this does not seem appropriate, as Marx, in this section makes no such reference to a deduction of rent. Rather his example speaks of the total social product. In that case, the value of the total social product would rise in the way I have described, and any deduction of rent from it would not, in any case, alter the value of the total product, or the mass of surplus value produced. It would simply affect the distribution of the product and the division of the surplus value between profit and rent. The other explanation here would be that the value of the product is initially £120, but represents a surplus profit of £10 taken as rent. So, as the cost of production rises, the surplus profit and rent falls accordingly, leaving the value at £120.
Marx's example would apply where the price of c remains constant, but the price of v rises. In that case, using our original example, the value of c would remain £50, but the value of v would rise to £62.50, whilst s would fall to £37.50. In that case, the value of the product would remain constant at c 50 + v 62.50 + s 37.50 = £150. But, it would have required a capital of £112.50 rather than £100 to produce. The rate of profit would be 33.3%.
“If, therefore, a change in an element of cost, here a rise in price—a rise in value—only alters (the necessary) wage, then the following takes place: Firstly, the rate of surplus-value falls; secondly, with a given capital, less constant capital, less raw material and machinery, can be employed.” (p 278)
However, the conclusion that Marx then draws is clearly wrong. He goes on,
“The absolute amount of this part of the capital decreases in proportion to the variable capital, and provided other conditions remain the same, this must always bring about a rise in the rate of profit (if the value of constant capital remains the same).” (p 278)
The opposite is the case, and it appears to me from Marx's further comments that he may have simply made a simple error saying rise here where he meant to say fall. In fact, that is what he does say a few lines further on, where he says,
“Provided, therefore, that the organic composition of the capital remains the same, in so far as its physical component parts regarded as use-values are concerned; that is, if change in the composition of the capital is not due to a change in the method of production within the sphere in which the capital is invested, but only to a rise in the value of the labour-power and hence to a rise in the necessary wage, which is equal to a decrease in surplus-labour or the rate of surplus-value, which in this case can be neither partly nor wholly neutralised by an increase in the number of workers employed by a capital of given size—for instance £ 100—then the fall in the rate of profit is simply due to the fall in surplus-value itself.” (p 279)
This, in fact, is important for the later critique of Ricardo's theory of the falling rate of profit , because it highlights the two different and opposing causes of such a fall. On the one hand, Marx's explanation of the tendency for the rate of profit to fall is based on rising social productivity, causing the organic composition of capital to rise, as a greater mass of c is employed relative to v, i.e. a given mass of labour processes a larger mass of material. Consequently, even as this rise in productivity causes the unit value of that material to fall, the overall value of c (the mass of material processed) rises relative to v. However, the opposite situation is described here, and is the basis of Ricardo's theory of falling profits. It is that productivity falls, and the value of v rises, causing a profits squeeze as s falls. Taking Marx's example, the technical and so organic composition of capital remains the same, but the wages rise so that the value composition of capital falls. A given amount of capital then employs less constant and variable capital. Using our earlier example, originally we had £100 capital employing 50 units each of c and v. So,
c 50 + v 50 + s 50 = 150, r' = 50%.
A 50% rise in wages meant that only 40 units of c and v can be employed. But, the 40 units of labour now cost £60.
c 40 + v 60 + s 20 = 120, r' = 20%.
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