Materials, the Luxury-Goods Sector, and the General Profit Rate

H. Materials, the Luxury-Goods Sector, and the General Profit Rate

Marx, we have shown, adhered to the Ricardian inverse profit-wage relation. But

he did so “all else remaining the same” (above p. 38). Included in the ceteris paribus pound are the prices of raw materials, for should they rise or fall the general profit rate will be affected: “Since the rate of profit is s C , or s c +v , it is evident that everything causing a variation in the magnitude of c, and thereby of C, must also bring about a variation in the rate of profit, even if s and v, and their mutual relation, remain unaltered. Now, raw materials are one of the principal components

41 of constant capital. Even in industries which consume no actual raw materials,

H. Materials, the Luxury-Goods Sector, and the General Profit Rate

these enter the picture as auxiliary materials or components of machinery, etc., and their price fluctuations thus pro tanto influence the rate of profit” (MECW 37: 108). Accordingly, foreign trade can affect the general profit rate, independently of any change in the wage rate, by affecting “the prices of raw or auxiliary materials consumed in industry and agriculture,” a relationship misunderstood by Torrens and neglected by Ricardo: “It is due to an as yet imperfect understanding of the nature of the rate of profit and of its specific difference from the rate of surplus value that, on the one hand, economists (like Torrens) wrongly explain the marked influence of the prices of raw material on the rate of profit, which they note through practical experience, and that, on the other, economists like Ricardo, who cling to general principles, do not recognise the influence of, say, world trade on the rate of profit.” The valid charge that Ricardo confused s/v and s/(c + v) is first stated in the Grundrisse (see Chapter 8, p. 252), and then in the Economic Manuscripts (see Chapter 10, p. 311).

There is a related matter, also conspicuous in the Economic Manuscripts (see Chapter

10, p. 312). The set of industries in Marx’s V-scheme does not distinguish between wage goods and luxuries, suggesting that aggregate profits and the average profit rate are calculated by reference to all industries in the system; by implication, any disturbance affecting profits in the luxury sector will influence the general return. This is strongly insisted upon:

But in general, it should be noted . . . that if variations take place, either due to savings in constant capital, or due to fluctuations in the price of raw materials, they always affect the rate of profit, even if they leave the wage, hence the rate[s ′ ] and amount of

surplus value, untouched. They change the magnitude of C in s ′v C , and thus the value of the whole fraction. It is therefore immaterial . . . in which sphere of production these variations occur; whether or not the production branches affected by them produce necessities for labourers, or constant capital for the production of such necessities. The deductions made here are equally valid for variations occurring in the production of luxury articles, and by luxury articles we here mean all production that does not serve the reproduction of labour power (MECW 37: 107).

Marx’s case against Ricardo thus turns on his non-discrimination between indus- tries in laying out the initial value scheme; to avoid his conclusion he would have had to set out the scheme to exclude luxuries. For those interpretations of the Transformation according to which the profit-rate depends solely on the rate of

exploitation (s/v) and the organic composition (c/v) of “basic” goods, 25 Marx fell into serious error.

25 See Howard and King on the demonstration by Bortkiewitz to this effect (1985: 143, 149). See also Medio 1972: 330–1, 340–1 cited above, p. 11; Steedman 1982: 125–6.

42 Value and Distribution