The Profits Squeeze v The Law of the Tendency for the Rate of Profit to Fall
So, The Law of the Tendency for the Rate of Profit to Fall cannot be the cause of the fall in profits that results in crises of overproduction. Rather, it is the squeeze on profits resulting from extensive accumulation, which creates those conditions, and the rise in the technical/organic composition of capital is the consequence of the measures taken to resolve that crisis, which then creates the conditions that underlie the Law of the Tendency for the Rate of Profit to Fall. Roberts has the process stood on its head. If we take, the gradual improvement in technology referred to by Marx above, then it is clear, not only from what he says, there, that this could not create the conditions for crisis. Firstly, any such gradual technological improvement would act far too little, and too slowly to have any effect. If it had any effect, it would be simply to create a relative surplus population in each sphere in which any such changes occurred. Taken together with Roberts' claim that falling profits leads to a slower rate of accumulation, this would cause unemployment to rise faster, and wages to fall more and sooner, thereby raising profits faster.
But, in any case, as Marx sets out in Theories of Surplus Value, Chapter 23, the idea that the Law of the Tendency for the Rate of Profit to Fall could have any such effect in creating a crisis of overproduction is nonsensical. Its effect is far too small, and manifest only over such a long period of time that it can have no such consequence, particularly, as Marx notes that it goes along with an increasing mass of profits, and it is this increased mass of profit that is far more important in facilitating increased capital accumulation.
As Marx sets out, there, even in terms of the rate of profit, its not clear that the mechanism can have any significant effect, let alone any impact, in relation to causing crises.
“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)
In other words, as Marx sets out, if productivity rose in such a way that the proportional relations between c, v and s remain constant, then there would be no change in the organic composition, and no basis for a change in the rate of profit. Suppose we have production of yarn, in which 100 hours of labour uses a spindle to process 100 kilos of cotton into yarn. The rate of surplus value is 100%, the value of the spindle is £10, the cotton £10, wages are £5 and profit is £5. The organic composition of capital is 4:1, and rate of profit is 20%.
Now, the spindle is replaced by a spinning machine with 10 spindles, so that, now, 100 hours of labour spins 1,000 kilos of cotton into yarn. But, Marx says, if productivity in society, which has produced the spinning machine in place of the spindle, also reduces the value of the spinning machine to £10, and the 1,000 kilos of cotton to £10, then the organic composition of capital would remain 4:1, and the rate of profit would remain at 20%. In fact, of course, that same rise in productivity would have reduced the value of wage goods, and so of labour power, so that wages might fall say to £1, whilst surplus value would rise to £9, so that the rate of profit would, in fact, rise to 42.86%.
And, Marx expands on this in Capital III, Chapter 6, showing that, in fact, even though the value of fixed capital may rise in absolute terms, it falls in relative terms, because the productive capacity of it rises in greater proportion to its cost.
“Further, the quantity and value of the employed machinery grows with the development of labour productivity but not in the same proportion as this productivity, i. e., not in the proportion in which this machinery increases its output. In those branches of industry, therefore, which do consume raw materials, i. e., in which the subject of labour is itself a product of previous labour, the growing productivity of labour is expressed precisely in the proportion in which a larger quantity of raw material absorbs a definite quantity of labour, hence in the increasing amount of raw material converted in, say, one hour into products, or processed into commodities. The value of raw material, therefore, forms an ever-growing component of the value of the commodity-product in proportion to the development of the productivity of labour, not only because it passes wholly into this latter value, but also because in every aliquot part of the aggregate product the portion representing depreciation of machinery and the portion formed by the newly added labour — both continually decrease. Owing to this falling tendency, the other portion of the value representing raw material increases proportionally, unless this increase is counterbalanced by a proportionate decrease in the value of the raw material arising from the growing productivity of the labour employed in its own production.”
(Capital III, Chapter 6)
It is the proportionally greater quantity of raw material being processed that is the basis of the rising organic composition of capital, and, thereby of the Law of the Tendency for the Rate of Profit to Fall. Yet, as Marx set out above, in Theories of Surplus Value, Chapter 23, if the unit value of raw material also falls, in inverse proportion to the rise in the quantity of it processed, then its value would remain constant, and there would be no change in the organic composition, and so no basis for the Law of the Tendency for the Rate of Profit to Fall. Marx believed that the unit value of raw materials would not fall by this required proportionate amount, for several reasons.
“To this it is quite easy to answer that some kinds of raw materials, such as wool, silk, leather, are produced by animal organic processes, while cotton, linen, etc., are produced by vegetable organic processes and capitalist production has not yet succeeded, and never will succeed in mastering these processes in the same way as it has mastered purely mechanical or inorganic chemical processes. Raw materials such as skins, etc., and other animal products become dearer partly because the insipid law of rent increases the value of these products as civilisation advances. As far as coal and metal (wood) are concerned, they become much cheaper with the advance of production; this will however become more difficult as mines are exhausted, etc.”
(Theories of Surplus Value, Chapter 23)
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