As Marx sets in Capital I, the accumulation of capital also sees a rise in the organic composition of capital. In other words, the capital employed as means of production (constant capital) rises relative to the capital employed as living labour (variable-capital).
“With the accumulation of capital, therefore, the specifically capitalistic mode of production develops, and with the capitalist mode of production the accumulation of capital. Both these economic factors bring about, in the compound ratio of the impulses they reciprocally give one another, that change in the technical composition of capital by which the variable constituent becomes always smaller and smaller as compared with the constant.”
But, the means of production (constant capital) comprises two different elements, analysed in more detail in Theories of Surplus Value, I. That is the means of production divides into instruments of labour – buildings, machines, tools, i.e. fixed capital – and raw and auxiliary materials, i.e. circulating constant capital. Marx's great advance in setting out the real nature of the law of the falling rate of profit was to show that it is the growth of the second of these elements relative to labour that is its basis.
“The reason is simply that, with the increasing productivity of labour, not only does the mass of the means of production consumed by it increase, but their value compared with their mass diminishes. Their value therefore rises absolutely, but not in proportion to their mass. The increase of the difference between constant and variable capital, is, therefore, much less than that of the difference between the mass of the means of production into which the constant, and the mass of the labour power into which the variable, capital is converted.”
(ibid)
Moreover, the amount of fixed capital may or may not rise relative to labour that is its basis, but the increase in the amount of this fixed capital, and the continual revolutionising of the efficacy of this fixed capital brings about huge rises in labour productivity, so that each unit of labour processes increasing amounts of material. By this means, the organic composition of capital, the rise in the mass and value of means of production, specifically of raw materials, relative to labour rises.
“To express this, I call the value composition of capital, in so far as it is determined by its technical composition and mirrors the changes of the latter, the organic composition of capital. Wherever I refer to the composition of capital, without further qualification, its organic composition is always understood.”
(ibid)
This is a relative fall in the amount of labour employed, whilst its absolute amount rises.
“Growth of capital involves growth of its variable constituent or of the part invested in labour power.”
“The reproduction of a mass of labour power, which must incessantly re-incorporate itself with capital for that capital’s self-expansion; which cannot get free from capital, and whose enslavement to capital is only concealed by the variety of individual capitalists to whom it sells itself, this reproduction of labour power forms, in fact, an essential of the reproduction of capital itself. Accumulation of capital is, therefore, increase of the proletariat.”
(ibid)
As its only the labour that creates new value, and thereby surplus value, this means that although absolutely more labour is employed, and so absolutely more surplus value is produced, the amount of labour employed falls relative to the total output, and the amount of surplus value produced relative to output, therefore also falls. Its this which creates the tendency for the rate of profit (p/k) or profit margin to fall.
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