Marx notes,
“All this is fine and good. It is quite correct that the amounts accumulated by no means depend solely on the rate of profit, but on the rate of profit multiplied by the capital employed, that is, just as much on the size of the capital advanced. If we call the capital employed C, and the rate of profit r, then accumulation will be Cr, and it is clear that this product can increase if C grows more quickly than r declines. And this is indeed a fact derived from observation. But this does not explain the cause, the raison d’être of this fact. Jones himself came very near to it when he made the observation that the auxiliary capital continuously increases relatively to the working population by which it is put into motion.” (p 447)
Jones also notes that, if the rate of profit fell too low, capital would go overseas to be employed where the rate of profit was higher. As Marx noted previously, as against Ricardo, where capital does migrate to higher profit areas, the consequence is to raise the average rate of profit itself. Lenin argued that it was falling profits that led imperialism to invest overseas. But, contrary to Lenin's expectations, most of this investment took place in other developed imperialist economies, for the reasons Jones and Marx describe here.
Ricardo confuses the nature of the rate of profit as the rate of the total surplus value to the laid out productive-capital. Ricardo argued that the rate of profit falls, in part, because rising agricultural prices cause rents to rise. But, Marx points out that this does not affect the rate of profit, because it is calculated before the deduction of rent, interest/dividends or taxes.
“Insofar as the decline in [the rate of] profit is due to the cause mentioned by Ricardo—the rise of rent—the ratio of the total surplus-value to the capital employed remains unchanged. But one part of it—rent—increases, at the expense of the other part i.e., of profit; this leaves the proportion of the total surplus-value, of which profit, interest and rent are only categories, [to the total capital] unchanged. Thus, in fact, Ricardo denies the phenomenon itself.” (p 447)
As Marx describes in Capital III, movements in the rate of interest prove nothing, also, in this regard. The rate of interest is a function of the demand and supply for loanable money-capital. At a time when the rate of profit is high, this may increase the demand for money-capital, to finance accumulation, but, similarly, the main source of new supplies of money-capital is realised profits themselves, so that whilst the demand rises, the supply rises along with it. Either firms retain the larger profits to finance their accumulation, or they throw additional profits into the money markets, thereby raising the supply of money-capital and pushing interest rates down. Moreover, if the rate of profit rises due to a rise in productivity that reduces the value of constant and variable-capital, as seen earlier, this also results in a release of capital that is available for accumulation, so that the demand for money-capital, to finance this accumulation, is thereby reduced. As Marx describes, at the start of the period of expansion, the rise in profits increases the supply of money-capital so that it can exceed the demand for money-capital, so even as the rate of profit rises, the rate of interest falls. As the expansion moves into a period of boom, the demand for money-capital begins to exceed the supply, so that interest rates begin to rise progressively. In this period, the rising interest rates can burst speculative bubbles that developed during the period of low interest rates. Then, in the period of crisis, as profits are squeezed, because labour supplies are used up, wages rise, interest rates hit their peak as firms demand money not to use for expansion, but simply as currency to pay their bills and stay afloat. Finally, in the period of stagnation, following the crisis, the rate of profit rises, as a relative surplus population is created, wages are reduced, the prices of constant and variable capital falls. But, during this period there is intensive rather than extensive accumulation. The new technologies introduced, that create the relative surplus population replace labour, and thereby enable the same level of output to be produced at lower cost. The net product rises relative to the gross output, as the rate of surplus value, and rate of profit rises. The supply of additional profits, thereby, grows faster than the accumulation of capital, particularly in the immediate aftermath of the crisis. The rate of interest, therefore, falls to its lowest level during this period, it now again encourages speculation, as the low interest rates cause capitalised asset prices to rise.
“... the mere decline in the rate of interest proves nothing in itself, just as its rise proves nothing, although it does indeed always indicate the minimum rate below which profit cannot fall. For profit must always be higher than the average rate of interest.” (p 447)
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