Materials, the Luxury Sector, and the General Profit Rate

E. Materials, the Luxury Sector, and the General Profit Rate

Marx in the 1861–63 documents repeatedly insists on the objection – already found in the Grundrisse (see Chapter 8, p. 252) – to Ricardo’s fundamental proposition (1951–73 1: 118) whereby the general profit rate varies uniquely with the real wage, or cost of production of the wage basket, that it holds good only “if one reads

‘rate of surplus value’ for rate of profit . . . ” (MECW 32: 57). 19 That the general profit rate can vary even with s/v unchanged, allows for the effect of changes in c, including variations in raw materials costs. Moreover, the elaboration extends to disturbances in the luxury sector.

As for the impact of a change in materials costs: “ . . . Ricardo imagines that an increase in the price of raw produce only affects the rate of profit in so far as it raises the price of the means of subsistence of the worker. And it is true that an increase in the price of raw produce can only in this way affect the rate of surplus value and consequently surplus value itself, thereby affecting the rate of profit. But assuming

a given surplus value, an increase in the price of the ‘raw produce from the surface of the earth,’ would raise the value of constant capital in proportion to the variable, would increase the ratio of constant capital to variable and therefore reduce the

19 Marx also found fault with J. S. Mill’s “On Profits and Interest” in Some Unsettled Questions. Although Mill did not identify (s/v) and (s/c + v) in the Ricardian fashion, he nonetheless

attempted “to derive Ricardo’s law of the rate of profit (in inverse proportion to wages) directly from the theory of value without distinguishing between surplus value and profit” (MECW 32: 373).

1861–1863 I: Surplus Value – Profit, Rent, and Interest

rate of profit . . . ” (15; also 19). It should, however, also be noted that Marx allowed correctly that some of Ricardo’s arguments do recognize effects on the profit rate reflecting “variation[s] in the value of the constant capital” – including materials – “independently of the value of labor” (66–7).

The remaining issue relates to the role of the luxury sector in profit-rate deter- mination, a matter touched on earlier (above, p. 309). Thus capital-saving tech- nical change increasing initially the profit rate in luxury production will raise the economy-wide profit rate: “Even in the case of luxury articles . . . improvements can raise the general rate of profit, since the rate of profit in these spheres of produc- tion, as in all others, bears a share in the levelling out of all particular rates of profit into the average rate of profit. If in such cases . . . the value of the constant capital falls proportionately to the variable, or the period of turnover is reduced (i.e. a change takes place in the circulation process), then the rate of profit rises”

(57–8). 20 In the reverse case of an increase in the labor costs of producing mate- rials used only in luxury products, the general return falls, since “the general rate of profit consists of the average of the particular rates of profit in all branches of business” (64). Again, should the c/v ratio rise in luxury production: “ . . . since the rate of profit in this sphere enters into the equalisation process of the general rate of profit just as much as that in any other sphere, increased productivity in the luxury industry would . . . bring about a fall in the general rate of profit” (MECW

33: 276). And more generally: “ . . . variations in the real rate of profit (that is, the ratio of the surplus-value really produced in these branches of industry to the cap- ital expended) in these branches of industry affect the general rate of profit, which arises as a result of the levelling of profits, just as much as variations in the rate of profit in branches of industry whose products enter directly or indirectly into

the consumption of the workers” (MECW 31: 60). 21 Only at one point does Marx hint at the possible validity of Ricardo’s case that a change in the profit rate in the case of luxuries will be only temporary as prices adjust to reequate the return to the general level (MECW 32: 64).