Illustrating the problem of the arguments of proponents of historic pricing, Marx notes,
“For them (the workers AB) one quarter would be equal to half a working-day. But the 180 quarters would only cost the capitalist an outlay of 45 working-days instead of 60. Since however it would be absurd to suggest that corn under the name of seed costs less labour-time than it does under the name of corn pure and simple, we would have to assume that in the case of the first 60 quarters, seed corn costs just as much as it did previously, but that less seed is necessary, or that the fixed capital which forms part of the value of the 60 quarters has become cheaper.” (p 210)
In fact, Marx's argument is flawed, here, however, and illustrates the problem of using hypothetical, single product economy, examples. The reduction in the value of the constant capital, Marx has already stipulated as deriving from a reduction in the labour-time required for its production, from 30 days to 15 days. It must be assumed, therefore, that this is for the equivalent quantity of seed etc., as previously. Consequently, the unit value of this seed must itself be revised, according to its current reproduction cost, for the reason Marx specifies, i.e. “... it would be absurd to suggest that corn under the name of seed costs less labour-time than it does under the name of corn pure and simple...” (p 210) The only alternative would be to assume that the use value of the seed corn had changed, so that some new type of seed corn is able to produce a greater quantity of corn, or the same quantity, for a smaller quantity of seed.
The logical extension that Marx should have applied to his argument here, is that as a consequence of the fall in the value of c, from 30 to 15, the value of the 180 kilos of corn falls to 15 + 60 = 75, so that the value per kilo of corn falls from ½ day to 75/180 = 0.417 days. In that case, the value of labour-power falls, and the rate of surplus value rises.
“The position is similar when the value of constant capital diminishes, and with it the value of the capital advanced; that is, the proportion of surplus-value to capital increases, and this proportion is the rate of profit.” (p 210-11)
Marx reiterates the point made in Capital III, Chapter 12, that the rate of profit is calculated not just on the value of the constant capital laid out and consumed, in production, as well as the variable-capital, but on the total value of the fixed capital advanced. However, as presented, this statement is misleading. As Marx and Engels set out in Capital III, this formulation is only correct if the capital turns over once during the year, which never happens. In other words, if a firm has fixed capital of £8,000, which last for 10 years, and so transfers £800 p.a. in wear and tear, and uses £2,000 of materials, and pays £2,000 in wages, with £2,000 in profit, the total value of its output is £800 + £2,000 + £2,000 + £2,000 = £6,800. If it only sells this output at the end of the year, its rate of profit/profit margin is 2000/4800 = 41.67% But, its not this rate of profit that Marx is talking about, or that determines the general rate of profit, which capitalists are concerned with, and which determines the allocation of capital.
The capitalist, as Marx suggests here, is not only concerned with the value of the capital that is consumed in production, but also with the capital that they must advance to produce the profit, and which is thereby tied up, and prevented from being utilised elsewhere. So, in the example, although the firm only consumed £800 of value of the fixed capital, in the production process, as wear and tear, it has still had to advance £8,000 for the fixed capital, and this capital could have been alternatively used, so as to be producing a profit. For the firm, they expect to make the average profit on that £8,000 of capital, just as much as they do on the £2,000 of materials, and £2,000 of variable-capital. But, equally, the firm is only concerned with the capital it must advance for materials and wages. If instead of only selling its output once, at the end of the year, the firm sends its output to market 5 times a year (every 10 weeks), then it only advances capital for materials and wages for this 10 week period, not for a year. So, instead of the capital advanced for materials being £2,000, it is only £400, and the same for wages. At the end of 10 weeks, it sells the output, and this capital advanced for materials and wages is returned to it, along with the value of wear and tear of the fixed capital. At the end of 10 weeks, it will also get back £400 of profit.
So, in a year, the capital advanced is only £8,000 fixed capital, £400 materials, £400 wages = £8,800, and it will have made £2,000 profit, so that its real rate of profit, or annual rate of profit is not 2000/4800, but 2000/8800. As Marx sets out, later, in Chapter 23, this is further complicated by the effects both of wear and tear of the fixed capital, and of the depreciation of the fixed capital. For example, suppose the fixed capital suffers no depreciation, but, as above, loses 10% p.a. in wear and tear, as a result of use. At the end of the first year, the £800 of wear and tear has been reproduced in the value of output, and returned to the firm, which places this £800 in its amortisation fund. So, the actual value of fixed capital advanced, in Year 2, is not £8,000, but only £7,200. As Marx then sets out, assuming no depreciation of the fixed capital, its use value, in production, remains the same, and, assuming no other changes the firm produces the same amount of profit. But, this profit is now measured against £7,200 of fixed capital, rather than £8,000, which means its rate of profit thereby rises. It will continue to rise each year accordingly, as the wear and tear of the fixed capital results in the amount of capital advanced to production progressively falling.
Where the fixed capital suffers depreciation, the firm experiences a capital loss, but the effect on the rate of profit depends upon the nature of the depreciation. A machine may suffer depreciation because, for example, the firm has been closed down for a period, and the machine has become rusty or otherwise deteriorated. Such depreciation can also affect materials and labour-power. Something similar might happen where equipment or materials are damaged by fire, water and so on. When the firm comes to replace all this equipment, it will have to do so at its current reproduction cost, and so the depreciated value of the equipment has no impact on the rate of profit. However, where capital is morally depreciated, because either a rise in productivity reduces its current reproduction cost, or because a new more technologically advanced machine is introduced, this does, thereby, result in a higher rate of profit.
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