Theories of Surplus Value, Part III, Chapter 23 - Part 6

Marx notes the difference between the rate of profit/profit margin, and the annual rate of profit, and the effect of machinery/fixed capital on it. As far as the value of the commodity/output is concerned, it is only the value of the wear and tear that contributes, but, when it comes to the annual rate of profit, it is the full value of the advanced fixed capital that is determinant, because all of this capital must be physically present for production to take place. The capitalist will expect to make the average rate of profit on this capital value just as much as on that which actually contributes to the value of output. 

“Profit, on the contrary, is determined (leaving raw materials out of account) by the value of the whole of the machinery which enters into the labour process irrespective of the degree to which it is used up. Profit must therefore decline as the total amount of labour employed declines compared with the part of capital laid out in machinery. It does not decline in the same proportion because surplus labour increases.” (p 367-8) 

But, this is a rather lax formulation. Firstly, its not the amount “laid out in machinery”, but the amount advanced. The amount laid out is more properly understood as the wear and tear. The greater the value of fixed capital advanced, the lower will be the annual rate of profit. Its true, as Marx says, that this is offset by the rise in the rate of surplus value. But, that is not the whole story. By increasing output, the effect of machinery is to reduce the working-period, and so raise the rate of turnover of capital, In doing so, the amount advanced for materials falls relative to the amount laid out for materials. The amount advanced for wages falls absolutely. So, the annual rate of surplus value rises, and the annual rate of profit will also rise, counteracting the fall in the annual rate of profit arising from the rise in the value of the advanced fixed capital. 

For example, ignoring any circulation period, if a 10 spindle machine, with a value of £1,000 is replaced by a 20 spindle machine, with a value of £1,200 we might have the following:- 

£1,000 machine – with 10% p.a. wear and tear + £5,000 cotton + £2,500 wages + £2,500 profit. 

Output equals 10,000 kilos of yarn, in a 10 week working period. 

In a 50 week year:- 

Output = 50,000 kilos. 

£100 wear and tear + £25,000 cotton + £12,500 wages + £12,500 profit = £50,100.

Cost of production, k, = £37,600. 

The rate of profit, s/(d + c + v), or p/k = 33.24%,

The total advanced capital C, is £8,500.

The annual rate of profit, s/C, is 147.05%. 

Then:- 

£1200 machine, £5,000 cotton, £1,250 wages, £1,250 profit. 

Output is 10,000 kilos in 5 week working period. 

So, in 50 weeks, output is 100,000 kilos. 

Wear and tear £120 + £50,000 cotton + £12,500 wages + £12,500 profit.

Cost of production, k, is £62,620

The rate of profit, p/k, is nearly halved to 19.96%,

Total advanced capital is £7,450, so the annual rate of profit, s/C,  rises  to 167.79%. 

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