Marx, in Capital III, Chapter 6, examines the concept of the tie-up and release of capital. In examining expanded reproduction in Capital II, Marx shows that the process of capital accumulation is one in which revenue is converted into capital. Revenue is that part of the national output equal to the consumption fund, which, in turn, is equal to the new value created by labour. In other words, in terms of the description given by Ramsay, the value of national output comprises the value of constant capital consumed. plus the new value created by labour. Marx describes this division also as the division between capital and revenue. Another way of describing it is that the value of national output resolves into c + v + s. Here, constant capital (c), is capital and forms no element of consumption. It must be physically reproduced, on a like for like basis, out of current production. The remaining portion of national output resolves into variable-capital, v, and surplus value, s. Its magnitude is determined by the new value created by current labour. It is this v + s that constitutes revenue.
However, as with c, if social reproduction is to proceed on the same scale, then, in order to process the means of production, in the following year, the labourers themselves must be reproduced. That means that the means of subsistence required by those labourers, for their reproduction, must also be reproduced, on a like for like basis. So, out of the total current production, as well as withdrawing products required to replace the constant capital, products must also be withdrawn to replace the variable-capital, i.e. to replace all of the wage goods required for the reproduction of the workers. Only after this is done, is what is left available as a surplus product for the consumption of the capitalists and other non-productive elements.
Where accumulation of capital occurs, therefore, it does so as a result of a portion of this revenue being used not for personal consumption, but for productive consumption, i.e. being converted into capital. What Marx demonstrates in Capital III, Chapter 6, and the same analysis is undertaken here, is that where social productivity rises, so that the value of the commodities that comprise constant and variable-capital falls, this has two effects. If we take a situation where the value of only constant capital falls, it means that, in terms of the national output, a smaller portion of total labour-time is required to reproduce the capital, on a like for like basis. So, even if the mass of surplus value remains constant, the rate of profit rises, because, now, the ratio of s:(c + v) rises, because c, and so (c + v) has fallen. This is why Marx calculates the rate of profit on the basis of the current reproduction cost of the commodities that comprise the capital, and not on the basis of their historic cost.
Secondly, if the same value of capital is employed, the total mass of output must rise, as a result of the rise in productivity, and fall in the value of constant capital. Now, a portion of social labour-time that previously went to replace constant capital is released, and so leads to an increase in the surplus product. It means that capital is released, and thereby converted into revenue. It is the opposite, essentially, of where revenue is converted into capital, by that portion of the social product being used for capital accumulation rather than unproductive consumption. Similarly, in Capital III, Chapter 6, Marx describes the opposite condition, where a fall in social productivity results in a rise in the value of the commodities that comprise the constant or variable-capital. This means that a greater proportion of current social-labour-time must be devoted to the reproduction of those elements of capital. Marx refers to this as a tie-up of capital. It means that, if production is to continue on the same scale, a portion of total output that would, otherwise, have been available as revenue/profit (interest, rent, tax) instead is required to reproduce the consumed capital. That means that the mass of profit is reduced by a corresponding amount, and that the rate of profit also falls.
What this demonstrates is that the rate of profit must be calculated on the current reproduction cost of capital, not on the historic cost of that capital; that correspondingly the potential for capital accumulation depends not just on the mass of available profit, but also on the current reproduction cost of the capital, because if the value of that capital falls, a given mass of profit will accumulate a greater quantity of it; and that, as the value of commodities falls, so capitalists have a greater portion of their revenue left after satisfying their consumption needs, available for accumulation.
As Ramsay puts it,
““To me it seems certain, that an increased facility of raising the various objects which enter into the composition of fixed capital, tends, by diminishing this proportion, to raise the rate of profit, just as in the former case of an augmented return of the elements of circulating capital, which serves to maintain labour” (op. cit., p. 164).” (p 339)
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