The Value Composition of Capital is the ratio of the value of constant capital to variable capital, assuming any given technical composition of capital. It, is thereby distinguished from the Organic Composition of Capital, which is the value composition as determined by the technical composition. It thereby measures changes in the relative unit prices of the elements of constant capital, as against the unit price of labour-power, wages.
These changes in unit prices are a consequence of changes outside the particular production process. For example, it is not changes in the production of yarn that causes the value/price of cotton to change. Nor is it changes in the production process of yarn that causes the value of labour-power/wages to change. A change in the value of cotton is caused by changes in the production process of cotton, for example, a change in productivity in its production, or in the production of means of production used in cotton production. A change in the value of labour-power arises from changes in the value of wage goods, which is the consequence of changes in social productivity.
However, changes in market prices can arise from changes in demand and supply. For example, if a new spinning machine is introduced that is capable of spinning a hundred times as much cotton with a given amount of labour, which also, thereby reduces the value of yarn, and causes an increase in the demand for it, it will also cause a spike in the demand for cotton, to be processed by these spinning machines. If the supply of cotton cannot be rapidly increased, the market price of cotton will rise sharply, even though the value of cotton has not changed. This increase in the price of cotton is a direct result of the changed conditions in yarn production. It causes a rise in the value composition of the capital in yarn production.
Such occurrences happen at the start of every new long wave uptrend, as the new industrial technologies, introduced in the previous period, and new ranges of commodities, cause demand for inputs to rise sharply, as trade and economic growth increase. The old mines, quarries, and farms that have been exploited extensively are unable to increase their output sufficiently, without much higher marginal costs. As demand outstrips supply, prices rise sharply. But, once seen as sustained, these higher prices cause a surge in investment in new mines, quarries, farms etc., often requiring the opening up of new territories, which also requires investment in roads, railways, warehouses, buildings and so on. Marx describes this situation in Theories of Surplus Value, Chapter 9, illustrating that the natural fertility of these new facilities is often higher than that of the existing facilities, contrary to Ricardo's assumption. However, the existing facilities have the advantage that they have had decades of investment in them, so that their natural fertility has been supplemented by these accumulated investments. It takes more than a decade, Marx says, before the investment in the new facilities, therefore, raises them up above the fertility of the existing facilities, so that market values begin to fall.
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| The prices of primary products like copper, as well as food, soared as the new long wave uptrend began in 1999. It took around 12-13 years for the new investment in mines, quarries and farms, once it was started to reduce market values, and to bring the additional supply that then caused these prices to drop sharply. |
That was seen in the period after the new long wave uptrend began in 1999. The prices of all primary products rose massively, as a result of rising demand. In the following decade, there was large-scale investment in new facilities. New mines and quarries were established in Central Asia, Africa, and South America, new industrial farms were established in Angola, and other parts of Africa, as well as promoting an increase in land clearance and the creation of new farms in South America. And, consistent with Marx's analysis, following on from the work of Anderson, new technologies were introduced, which raised existing levels of fertility, and made possible profitable exploitation of resources. For example, fracking meant that large shale deposits in the United States could be exploited, creating a large increase in the supply of oil and gas.
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| The global financial crisis of 2008/9 caused a global economic slowdown, which led to primary product prices dropping sharply, but most of the global economy continued to grow after 2008, particularly China, and other rapidly industrialising economies, which are the ones that use most raw materials for production. The market price of primary products rapidly spiked back up. Its only as all of the new production and supply came on to the market that prices of primary products began to fall sustainably. |
In line with Marx's analysis, in Chapter 9, after all of this additional investment, in both production facilities and infrastructure, was completed, the market value of all these products was reduced, and, in addition, the large increase in supply brought about a collapse in the previous inflated market prices, with the price of oil, for example, going from a high of $150 a barrel in 2007, to just $26 a barrel in 2014.
Marx notes, in Theories of Surplus Value, that, even as labour is thrown out of production, by new labour-saving technologies, the standard of living of those workers still in employment can and usually does rise. That is still consistent with wages falling. It simply requires that the prices of wage goods fall by more than the fall in wages. That can be seen in the 1930's, for example. Workers who lost their jobs, and became long-term unemployed saw their living standards fall sharply. However, the prices of most commodities also fell significantly, and by more than wages. That meant that those who remained in employment saw their standard of living rise.
It was most marked in the new industries that arose in the 1930's, such as motor car production, the production of domestic, electrical consumer products, and so on, which were developed in new areas in the Midlands and South-East. The wages in these new industries were also generally, higher than had been the case in the old declining industries. This was one reason that the Jarrow Marchers marched through these areas, so as to remind workers there that workers elsewhere in the country were still suffering tremendously.
When the period of long wave uptrend commences, therefore, it is in these new industries that the greatest increase in employment occurs, which was seen in the postwar period. But, this period is characterised by the continued existence of a pool of available labour resulting from the creation of a relative surplus population, following on from the previous technological revolution, and introduction of labour-saving technologies. To the extent that additional labour is required, so as to boost absolute surplus value, it is achieved by extending the working-day, and working week, including the use of overtime payments if required. When this reaches its limits, the social working-day is extended by bringing married women workers into the workforce, children if possible, and by immigration, including where possible, the migration of peasant producers from rural areas into the towns and cities.
Its only when all of these methods of extending the social working-day have been exhausted that the conditions described by Adam Smith, and by Marx in Capital III, Chapter 15, apply, whereby capital accumulates faster than the available labour supply, that the limits to absolute surplus value are reached, and the demand for labour causes wages to rise, and profits to be squeezed. That was seen in the 1960's and 1970's. It is this that is the basis of a crisis of overproduction of capital.
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