Tuesday, 5 November 2019

Theories of Surplus Value, Part III, Chapter 24 - Part 15

If firm A produces widgets, and increases its fixed capital, thereby increasing its productivity, it will continue selling widgets at the market determined price of production for widgets. Because it has raised its productivity, and thereby reduced its cost of production, it will now make surplus profits, equal to this difference in its individual cost of production compared to the widget industry as a whole. However, the fact remains, in relation to the whole economy, that more capital has been employed, equal to the additional fixed capital of A, whilst the amount of surplus value produced in the economy has not. By however small an amount, therefore, the rate of profit of the economy, as a whole, will have fallen. In reality, as Marx set out earlier, such falls in the rate of profit are very small, and only appear over very long periods of time, and are usually counteracted by other simultaneous influences, such as the rise in the rate of surplus value, the cheapening of constant capital, and the rise in the rate of turnover

Similarly, where, say, the British textile industry, as a whole, invests in additional, or more advanced, fixed capital, it will continue to sell its output at the global market price for textiles, and thereby make surplus profits equal to the difference between the individual cost of production of the British textile industry compared to the cost of production of the global industry. But, again, in relation to global capital, more capital is advanced, relative to surplus value, so that the global average rate of profit falls. The effect is so small, and takes so long to manifest itself that it is offset by the countervailing forces. 

The actual process by which it is manifest, so that what, in a global context represents a tendency for the rate of profit to fall, whilst at a national or enterprise level appears as a basis for the rate of profit to rise, is yet another example of the law of combined and uneven development

As Marx points out, Jones confuses two things, by representing the increase in the laid out capital, solely as an increase in fixed capital. Jones is quite right that because £100 of fixed capital is advanced, the farmer will expect to make the average 10% profit on the whole of this amount, even though only £20 of this value is consumed, each year, as wear and tear. The fact that only this £20 of value has to be reproduced is not a consequence of it being fixed capital, but only a consequence of it being constant capital, and of the fact that it is only this £20 that is transferred to the value of output. 

If instead of £100 having been advanced for fixed capital it had been advanced for raw materials, then the whole of this value would have been transferred to the year's production, so that, in just the same way that had £100 been advanced in wages, the value of output would have to have risen by £110, so as to reproduce the value of this additional capital, plus the average profit. In fact, as Marx points out, in most instances, in manufacturing industry, an increase in the quantity (or quality) of fixed capital implies an even larger rise in the quantity of material processed, and, therefore, of the value of material processed, which means that the total value of output, thereby, rises, not falls. 

“Compare, for example, the amount of raw cotton which a spinning-jenny consumes weekly or annually with that used up by a spinning-wheel.” (p 412) 

The weakness of Jones' argument, like that of Ricardo is that a) he does not identify the source of surplus value, simply assuming an average rate of profit, and b) he does not distinguish between exchange-value and price of production. If we examine his example, on the basis of exchange-value, then, initially, we have £100 of variable-capital, which produces £110 of new value, and consequently, £10 of surplus value. If, now, £100 of additional variable-capital is advanced, it produces an additional £110 of new value, and an additional £10 of surplus value, so that the rate of profit remains 10%. If, however, the £100 is advanced for fixed capital, with £20 being transferred to the value of output, each year, no additional surplus value is produced. The value of output is now £100 wages + £20 wear and tear + £10 surplus value = £130. But the profit is still £10, so that the rate of profit falls to 10/120 = 8.33%. In terms of an annual rate of profit, it falls to 5%. 

If the additional capital had been in the form of raw material, it would all have been laid out, during the year, so that the rate of profit and annual rate of profit would be the same, at 5%. The only reason that Jones can arrive at his conclusion is because he assumes that the additional capital is able to appropriate the average profit, even though it contributes no additional surplus value. In other words, he can only arrive at this conclusion on the basis that commodities sell at prices of production, and that these diverge from exchange-values. 

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