The condition of falling productivity, which lies behind the Malthusian/Ricardian theories of a falling rate of profit, imply a catastrophic fall also in the mass of profit. The Marxian theory of the tendency for the rate of profit to fall, by contrast, is dependent on an expansive, and expanding capitalism, with increasing productivity, and rising masses of profit.
“When there is equal expenditure on wage-labour, but the raw material worked up by one kind of capital (corn, for example) is dearer than the raw material worked up by another (oats, for example) (or, for that matter, silver and copper, etc., or wool and cotton, etc.), the rate of profit for the two capitals must be in inverse proportion to the dearness of the raw material.” (p 234)
Suppose industry A processes iron, which costs £10 per ton, whilst industry B processes copper, which costs £20 per ton. The labour required to process both metals is the same, say 10 workers process 100 tons in each case, and are paid £100 wages in total, in each industry. The rate of surplus value is 100%. In A, therefore, c £1,000 + v £100 + s £100 = £1200. In B, c £2,000 + v £100 + s £100 = £2200. The rate of profit in A is 9.09%, and in B 4.76%. In that case, competition would lead to capital accumulating faster in A, where the rate of profit is nearly twice that in B. The supply of iron products would rise, relative to the demand for them, so that their price fell, whilst the opposite would occur in B. Eventually, the prices would adjust until only the average profit was made in both industries.
“Or as if both A and B had from the very beginning charged a rate of profit commensurate with the size of the capital invested, that is, had divided the joint surplus-value between them on the basis of the amount of the capital they had invested. And this is what the term general rate of profit denotes.” (p 234)
Such an adjustment does not arise as a result of merely temporary phenomena, which arise all the time as a result of fluctuations in supply and demand, which are mediated by the movement of market prices around the price of production. It only applies to those underlying changes in productivity which change the labour-time required for production in each case.
“Although the extraordinary profits made by the cotton-spinners, for example, in years of especially good cotton crops, undoubtedly lead to an influx of new capital into this branch of industry and give rise to the building of a large number of new factories and of textile machinery. If a bad year for cotton ensues, then the loss [because of the sudden rise in the price of cotton] will be all the greater.” (p 234-5)
Labour productivity rises as a result of cooperative labour and the division of labour on a large scale, and because of economies of scale. But, the biggest effect on productivity is the introduction of machinery and developments in technology. These developments, which go hand in hand with the expansion of capital, and of surplus value, result, on the one hand, in an increase in the mass and value of the equipment employed, absolutely, but a fall in its mass and value, relatively.
“Machinery with increased productive capacity has become dearer in absolute terms, but has become cheaper in relation to its efficiency, and so forth.” (p 235)
As capital accumulates extensively, more machinery is employed. As technology improves, and capital accumulates intensively, one machine replaces several older machines, and rising productivity reduces the value of all machines. So, the number of machines may rise from 10 to 100, over a period, but the output from these machines may rise from 1,000 units to 100,000 units, so that, relative to output the number of machines has fallen by 90%, i.e. it would have required 1,000 of the old machines to produce 100,000 units of output. Moreover, the original 10 machines may have had a value of £10,000 whilst the 100 machines had a value of £50,000. In absolute terms the value of the fixed capital has increased five times, but the value of each machine has been halved. Moreover, the old machines transfer £10 of value to each of the 1,000 units they produce, whilst the 100 machines transfer just £0.50 of value to each unit of the 100,000 units they produce.
“Once the rate of profit is given, the amount of profit depends on the size of the capital employed. A large capital with a low rate of profit yields a larger profit than a small capital with a high rate of profit.” (p 236)
As capital expands, for all of the reasons described, the mass of profit expands, even as the rate of profit declines.
“When there is equal expenditure on wage-labour, but the raw material worked up by one kind of capital (corn, for example) is dearer than the raw material worked up by another (oats, for example) (or, for that matter, silver and copper, etc., or wool and cotton, etc.), the rate of profit for the two capitals must be in inverse proportion to the dearness of the raw material.” (p 234)
Suppose industry A processes iron, which costs £10 per ton, whilst industry B processes copper, which costs £20 per ton. The labour required to process both metals is the same, say 10 workers process 100 tons in each case, and are paid £100 wages in total, in each industry. The rate of surplus value is 100%. In A, therefore, c £1,000 + v £100 + s £100 = £1200. In B, c £2,000 + v £100 + s £100 = £2200. The rate of profit in A is 9.09%, and in B 4.76%. In that case, competition would lead to capital accumulating faster in A, where the rate of profit is nearly twice that in B. The supply of iron products would rise, relative to the demand for them, so that their price fell, whilst the opposite would occur in B. Eventually, the prices would adjust until only the average profit was made in both industries.
“Or as if both A and B had from the very beginning charged a rate of profit commensurate with the size of the capital invested, that is, had divided the joint surplus-value between them on the basis of the amount of the capital they had invested. And this is what the term general rate of profit denotes.” (p 234)
Such an adjustment does not arise as a result of merely temporary phenomena, which arise all the time as a result of fluctuations in supply and demand, which are mediated by the movement of market prices around the price of production. It only applies to those underlying changes in productivity which change the labour-time required for production in each case.
“Although the extraordinary profits made by the cotton-spinners, for example, in years of especially good cotton crops, undoubtedly lead to an influx of new capital into this branch of industry and give rise to the building of a large number of new factories and of textile machinery. If a bad year for cotton ensues, then the loss [because of the sudden rise in the price of cotton] will be all the greater.” (p 234-5)
Labour productivity rises as a result of cooperative labour and the division of labour on a large scale, and because of economies of scale. But, the biggest effect on productivity is the introduction of machinery and developments in technology. These developments, which go hand in hand with the expansion of capital, and of surplus value, result, on the one hand, in an increase in the mass and value of the equipment employed, absolutely, but a fall in its mass and value, relatively.
“Machinery with increased productive capacity has become dearer in absolute terms, but has become cheaper in relation to its efficiency, and so forth.” (p 235)
As capital accumulates extensively, more machinery is employed. As technology improves, and capital accumulates intensively, one machine replaces several older machines, and rising productivity reduces the value of all machines. So, the number of machines may rise from 10 to 100, over a period, but the output from these machines may rise from 1,000 units to 100,000 units, so that, relative to output the number of machines has fallen by 90%, i.e. it would have required 1,000 of the old machines to produce 100,000 units of output. Moreover, the original 10 machines may have had a value of £10,000 whilst the 100 machines had a value of £50,000. In absolute terms the value of the fixed capital has increased five times, but the value of each machine has been halved. Moreover, the old machines transfer £10 of value to each of the 1,000 units they produce, whilst the 100 machines transfer just £0.50 of value to each unit of the 100,000 units they produce.
“Once the rate of profit is given, the amount of profit depends on the size of the capital employed. A large capital with a low rate of profit yields a larger profit than a small capital with a high rate of profit.” (p 236)
As capital expands, for all of the reasons described, the mass of profit expands, even as the rate of profit declines.
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