The very gradual, small, long-term, tendency for the rate of profit to fall, Marx explains, arises from this same rise in productivity, because it means that the mass of raw material processed rises significantly, relative to the labour required to process it, i.e. c rises relative to v + s. Consequently, even though s rises in absolute terms, it falls relative to c. Even if v falls, as a result of the rise in productivity, reducing the value of wage goods, s will still tend to fall, relative to c + v, thereby, causing the rate of profit to fall.
In Theories of Surplus Value, Chapter 23, Marx, however, explains why this fall in the rate of profit, is very small, even over long-time periods. Whilst the mass of material processed rises (a rise in the technical composition), the rise in social productivity also reduces its unit value (reducing the value composition). So, it requires that the technical composition of capital rises by more than the fall in the value composition of capital, so causing the organic composition to rise. There is no reason why this has to be the case. Moreover, the value of labour-power also falls, increasing the rate and mass of surplus value, so that s may rise, relative to c + v, causing the rate of profit to rise.
These processes are also fundamental to the questions addressed in Wage Labour and Capital, in relation to the best conditions for workers, arising from this, wages to rise, but why this, within the constraints of capitalism, necessarily, then, leads to wages squeezing profits, a crisis of overproduction of capital, workers being laid-off, a technological revolution that brings in labour-saving machines that raise productivity, and the cycle begins again, as these conditions lead to a period of stagnation, in which net output rises relative to gross output, until that leads to a new period of long-wave expansion.
Given the nature of the pamphlet as a propaganda pamphlet, aimed at workers, therefore, Engels says he feels sure that Marx, himself, would have updated it, in accordance with how he would have written it in 1891, not 1849.
Engels explains that his alterations centre on the distinction, elaborated above, between labour-power and labour, as “one of the most important points in the whole range of political economy”. (p 6)
“Classical political economy borrowed from the industrial practice the current notion of the manufacturer, that he buys and pays for the labour of his employees. This conception had been quite serviceable for the business purposes of the manufacturer, his bookkeeping and price calculation. But naively carried over into political economy, it there produced truly wonderful errors and confusions.” (p 6-7)
As I have described, elsewhere, Marx detailed the way in which the individual, independent commodity producers became employed by capitalists, in a series of distinct stages. Engels, also, describes this in his Supplement to Capital III. If we take the Putting Out System, for example, the merchants, who previously sold material to producers, and bought from them the finished commodity, extracting only a merchant's profit, on the basis of unequal exchange, now become employers of that same labour-power.
A producer that failed, now, found themselves in the position that the merchant, instead of selling material to them, supplied it free, but on condition of appropriating the whole of this end product, for they only paid the producer for the labour they had provided. Superficially, it appeared that the producer had sold this labour to the merchant and been paid for it. In fact, the merchant paid to the producer the equivalent of a wage, equivalent not to the value added, by their labour, but the value of their labour-power, i.e. the value of reproducing the labourer. By this means, the merchant appropriated not just their previous commercial profit, but the whole of the surplus value produced by the labourer, equal to the difference between the value of their labour-power, and the new value created by their labour.
As Engels describes, this is why capital first enters those spheres of production where the organic composition of capital is high, i.e. where the relative quantity of material, or the unit value of material is high, because its in those spheres where the failure of the independent producer most makes them dependent on the merchant for supply of those materials.
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