The overproduction of capital is manifest as extensive accumulation sees labour supplies used up, limiting the expansion of absolute surplus value. The demand for labour enables workers to raise wages, and reduce their working hours. So relative surplus value/the rate of surplus value falls, squeezing profits.
“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”
(Capital III, Chapter 15)
To remedy this, capital introduces labour-saving technology. Extensive accumulation is replaced by intensive accumulation, and a relative surplus population is created. Wages fall raising the rate of surplus value. As unemployment rises, workers weaker position enables capital again to extend the individual working-day, increasing absolute surplus value. The rise in social productivity is marked by the fact that a given amount of labour now processes a greater quantity of raw material, so that the technical composition of capital rises. If there were no change in the unit values of raw materials, or of fixed capital, then this rise in the technical composition would translate into an equivalent rise in the organic composition of capital. The rate of profit would fall, unless the rate of surplus value rose sufficiently to offset it. But, in Theories of Surplus Value, Marx sets out how the same rise in social productivity causes the unit value of raw material to fall, and causes the value of fixed capital to fall as a result of moral depreciation.
This is most marked, Marx says in the case of fixed capital, and other manufactured raw materials, because technological development, and rising productivity reduces their values significantly, but this is less possible, he believed with primary products, which are dependent on nature. However, Marx says, the fall in unit prices of materials, whilst not enough to offset the rise in the technical composition of capital, is sufficient to prevent it causing the rate of profit to fall, when combined with the other factors such as the fall in the value of fixed capital, and the rise in the rate of surplus value.
“It is an incontrovertible fact that, as capitalist production develops, the portion of capital invested in machinery and raw materials grows, and the portion laid out in wages declines. This is the only question with which both Ramsay and Cherbuliez are concerned. For us, however, the main thing is: does this fact explain the decline in the rate of profit? (A decline, incidentally, which is far smaller than it is said to be.) Here it is not simply a question of the quantitative ratio but of the value ratio.”
(Theories of Surplus Value, Chapter 23)
Marx then sets out that, if the value of raw materials, and of machinery, falls proportionate to the rise in productivity, there could be no change in the organic composition of capital, because the fall in the value composition would equal the rise in the technical composition. But, in that case, the long-term rate of profit must rise, because the rise in social productivity, reducing necessary labour-time, would increase the rate of surplus value. Then c:v+s would not change, but s/v would rise meaning that s/c + v rises causing the rate of profit to rise.
Marx believed this would not happen, because of various reasons. For one thing, like Keynes, he argues that wages are sticky downwards, so that wages do not fall as much as any fall in the value of labour-power. He saw workers resisting falls in money wages. However, in the 20th century, capital got around this, by having central banks control the issue of fiat currency, by which means prices rise each year, so that rises in money wages can hide actual falls in those wages, when related to both rising prices, and rising productivity. A fall in necessary labour relative to surplus labour, can then be hidden by rising money wages, and rising living standards.
“The fact that the (proportionally) declining quantity of labour is not fully offset by increased productivity, or that the ratio of surplus labour to the capital expended does not increase at the same rate as the relative amount of labour employed declines, is due partly to the fact that the development of the productive power of labour reduces the value of labour, the necessary labour, only in certain capital investment spheres, and that, even in these spheres, it does not develop uniformly, and that factors exist which nullify this effect; for example, the workers themselves, although they cannot prevent reductions in (real) wages, will not permit them to be reduced to the absolute minimum; on the contrary, they achieve a certain quantitative participation in the general growth of wealth.”
(Theories of Surplus Value, Chapter 21)
But, also, as set out earlier, at the time he was writing, primary production, especially in agriculture, was not capital intensive, and so increases in productivity did not cause the kinds of falls in unit values of primary products that now occur. Moreover, since that time, a greater proportion of raw materials take the form of manufactured products, both as synthetic materials, and of intermediate production. In addition, the fixed capital stock has risen, so that the large falls in the value of fixed capital, as a result of technological development, and moral depreciation have an increasing effect on raising the annual rate of profit, as well as the rate of profit, and producing releases of capital.
The fall in the unit value of constant capital, therefore, does not completely cancel the increase in the technical composition, but it checks it enough to prevent a fall in the rate of profit, when combined with the rise in the rate of surplus value.
“The cheapening of raw materials, and of auxiliary materials; etc., checks but does not cancel the growth in the value of this part of capital. It checks it to the degree that it brings about a fall in profit.”
(Theories of Surplus Value, Chapter 23)
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