There is another factor bearing on the annual rate of profit, here, also, which is that with more workers and/or machines employed, the amount of output required for a normal working period, in any particular industry, is achieved in less time, so the rate of turnover of capital increases, raising the annual rate of profit. So, the rate of profit can rise, whilst the rate of surplus value falls, and the rate of profit can fall when the rate of surplus value rises. It depends on the organic composition of capital, the rate of turnover of capital, and the quantity of labour employed.
“Here we see immediately, how extremely wrong it is to identify the laws relating to the rise and fall of surplus-value with the laws relating to the rise and fall of profit. If one merely considers the simple law of surplus-value, then it seems a tautology to say that with a given rate of surplus-value (and a given length of the working-day), the absolute amount of surplus-value depends on the amount of capital employed. For an increase in this amount of capital and an increase in the number of labourers simultaneously employed are, on the assumption made, identical, or merely [different] expressions of the same fact. But when one turns to an examination of profit, where the amount of the total capital employed and the number of workers employed vary greatly for capitals of equal size, then the importance of the law becomes clear.” (p 410-11)
Ricardo does not have this conception of the organic composition of capital. Like Smith, he confuses and conflates fixed capital with constant capital. His analysis is framed, therefore, in terms of fixed capital and labour. So, when he comes to undertake his analysis by starting with the value of commodities, he does not analyse the different ways this value might be comprised. He does not examine how much of that value comprises the materialised labour, of the material and other components of constant capital, as against how much of the value comprises the new value added by labour.
Ricardo, like James Mill, Say and others, proceeds as though it is still a matter only of commodity producers exchanging commodity for commodity, and this is one reason they fall into the error of Say's Law, and conclude that overproduction of commodities is impossible.
“This appearance is nevertheless false, since it is not a question of commodities here, but of capitalist production, of commodities as products of capital.” (p 411)
Ironically, some modern Marxist economists effectively also fall into the trap of Say's Law, out of a desire to avoid being labelled underconsumptionists. They base themselves on Marx's reproduction schemas, which deal only with the question of the production and reproduction of value and surplus value, abstracted from the question of demand. Marx assumed the problem of demand away in those earlier formulations, only in order to analyse the underlying value relations, so as to examine the process of production, circulation, and reproduction as a continuous whole, in the same way that the Physiocrats had done with the Tableau Economique. But, Marx had certainly not excluded the question of demand, and returns to it, briefly at the end of Volume II, and in Volume III, and at much greater length in Theories of Surplus Value, in setting out his theory of crisis, and critique of the crisis theories of the earlier economists such as Smith, Ricardo, Mill, and Say etc.
In Chapter 21, examining this circulation of commodities and capital, and the potential for the circulation to become blocked, Marx notes,
"The stop made by the commodities, their sojourn at this stage of the process, their presence on the market instead of in the mill or in a private house (as articles of consumption) or in the shop or the store of the shopkeeper, is only a tiny fraction of time in their life-process. The immobile, independent existence of this world of commodities, of things, is only illusory. The station is always full, but always full of different travellers. The same commodities (commodities of the same kind) are constantly produced anew in the sphere of production, available on the market and absorbed in consumption. Not the identical commodities, but commodities of the same type, can always be found in these three stages simultaneously. If the intermediate stage is prolonged so that the commodities which emerge anew from the sphere of production find the market still occupied by the old ones, then it becomes overcrowded, a stoppage occurs, the market is glutted, the commodities decline in value, there is over-production. Where, therefore, the intermediate stage of circulation acquires independent existence so that the flow of the stream is not merely slowed down, where the existence of the commodities in the circulation phase appears as storing up, then this is not brought about by a free act on the part of the producer, it is not an aim or an immanent aspect of production, any more than the flow of blood to the head leading to apoplexy is an immanent aspect of the circulation of the blood. Capital as commodity capital (and this is the form in which it appears in the circulation phase, on the market) must not become stationary, it must only constitute a pause in the movement. Otherwise the reproduction process is interrupted and the whole mechanism is thrown into confusion."
Examining reproduction on the basis of the production and exchange of equal values is fine if you assume away the question of demand, in order to examine the functioning of the system as an ideal type, but as Marx points out, the capitalist system is not the kind of barter system implied by Say's Law. It involves the potential for crisis of all commodity production, of the separation of purchase and sale, and sale requires demand, which operates on the basis of quite different laws to those of supply, because demand is a function of use value, not value. As Marx puts it,
“The value supplied (but not yet realised) and the quantity of iron which is realised, do not correspond to each other. No grounds exist therefore for assuming that the possibility of selling a commodity at its value corresponds in any way to the quantity of the commodity I bring to market. For the buyer, my commodity exists, above all, as use-value. He buys it as such. But what he needs is a definite quantity of iron. His need for iron is just as little determined by the quantity produced by me as the value of my iron is commensurate with this quantity.
It is true that the man who buys has in his possession merely the converted form of a commodity—money—i.e., the commodity in the form of exchange-value, and he can act as a buyer only because he or others have earlier acted as sellers of commodities which now exist in the form of money. This, however, is no reason why he should reconvert his money into my commodity or why his need for my commodity should be determined by the quantity of it that I have produced. Insofar as he wants to buy my commodity, he may want either a smaller quantity than I supply, or the entire quantity, but below its value. His demand does not have to correspond to my supply any more than the quantity I supply and the value at which I supply it are identical.”
(Theories of Surplus Value 3)
Suppose a firm employs 20 workers. It pays them wages of £10 each, i.e. its wage bill is £200. For the sake of simplicity, we assume that there is no fixed capital, and so no wear and tear. They spin £800 of cotton into yarn, in a 10 hour day. A kilo of cotton costs £1, so £800 equals 800 kilos of cotton. The 20 workers spin this 800 kilos into yarn in 10 hours, which is 80 kilos per hour. If the necessary labour-time equals 8 hours, and surplus labour equals 2 hours, this is equal to 640 kilos of yarn, and 160 kilos of yarn respectively. If wages are £200, and the rate of surplus value is 25%, then surplus value is £50, and the total new value produced is equal to £250. So, the total value of the 800 kilos of yarn is £800 c + £200 v + £50 s = £1,050.
However, if each worker undertook 4 hours rather than 2 hours of surplus labour, the total surplus value would rise from £50 to £100, or from £2.50 per worker to £5 per worker. The total value of output also includes the additional materials processed as a result of this 2 hours of additional surplus labour. Previously, in 10 hours of labour, 800 kilos of cotton was processed, with a value of £800. In a 12 hour day, therefore, this rises by 20% to £960, with 960 kilos being processed. So, the total value of output rises from £1,050 to £960 c + £200 v + £100 s = £1,260. The price per kilo previously was 1050/800 = £1.3125, and is still £1.3125. So, a kilo of yarn has the same value here, and yet, in the second instance, this kilo of yarn contains twice as much surplus value as in the first instance.
“Moreover, according to the assumption, the necessary wages— their value, the labour-time they contained would have remained unchanged.” (p 411)
If we take a kilo of yarn, therefore, it has the same value, i.e. it represents an identical amount of labour-time, and yet the amount of capital advanced to produce this kilo of yarn is different in the first instance compared to the second. In the first instance, the capital advanced to produce a kilo or yarn is £1 cotton, £0.25 wages = £1.25. In the second instance a kilo comprises £1 cotton and £0.21 wages = £1.21.
“The same wages are spread over a larger volume of commodities here, not because labour is more productive in the one case than in the other, but because the total amount of unpaid labour which is set into motion in one case is greater than in the other.” (p 413)
If, in the second case, the productivity of labour had risen, so that a given quantity of labour processed more material, then the value of the yarn itself would fall, irrespective of any change in the relation of the paid to unpaid labour, i.e. any change in the rate of surplus value. So, it is wrong to conclude that, because the value of a commodity remains constant, this also means that the labour, and its division into paid and unpaid labour, also remains constant.
“And in order to know the amount of profit (actually of surplus-value) on one pound, we must know the length of the working-day, or the quantity of unpaid labour (when the productivity is given) that the capital sets in motion. But this information cannot be gathered by looking at the individual commodity.” (p 413)
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