Profit-Rate Determination: “Competition of Capitals”

I. Profit-Rate Determination: “Competition of Capitals”

In Poverty of Philosophy Marx refers to Proudhon’s position that “interest or profit on a loan (mutuum) tends to diminish continually through abundance of capital” (MECW 6: 204). Marx says nothing to controvert this “Smithian” proposition, and indeed seems to accept it, subject to a distinction between interest on agricultural and manufacturing capital: “The interest on capital invested in land is in general lower than the interest on capital invested in manufacture or commerce. . . . [T]he interest on land as capital diminishes still more than does the interest on other capital.” Does Marx justify the falling rate of interest?

In discussing the theme in “Wage Labour and Capital” whereby a falling interest rate results in an inflow of working-class recruits from amongst the small indus- trialists (above, p. 217), Marx simply takes the declining interest rate for granted. Nonetheless, the decline is evidently derivative; and the industrial capitalist is indeed said to experience a reduced return because of the competitive pressures “compelling” firms to introduce new methods with the consequences described above, pp. 215–16 (MECW 9: 222f). This trend is reinforced by pressures engen- dered by ever-worsening crises originating in secular output expansion in the face of limited markets: “They become more frequent and more violent, if only because, as

44 Marx cites Bowring’s House of Commons speech of July 1835 which represents “distress” as “an inevitable consequence of a species of labour easily learned” (MECW 6: 416; see also 422).

The damaging consequences of enhanced mobility is also found in the section of notes on John Wade 1833 (420).

A “First Draft” of Capital 1847–1849 the mass of production, and consequently the need for extended markets, grows,

the world market becomes more and more contracted, fewer and fewer markets [1891: new markets] remain available for exploitation, since every preceding crisis has subjected to world trade a market hitherto unconquered or only superficially exploited” (228).

The general notion of “competition of capitals” is typically Smithian. But in Smith’s case the falling profit rate results, in one version, from the presumed entry of more and more firms into each industry in the course of accumulation, a perspective reflecting an error of composition (1937 [1776]: 87); or, in a more satisfactory version, from increasing paucity of investment priorities: “As capitals increase in any country, the profits which can be made by employing them necessarily diminish. It becomes more and more difficult to find within the country a profitable method of employing any new capital” (336), Smith referring specifically to increasing land scarcity as one source of the problem (92–3). Marx, by contrast, takes on board the tendency towards “concentration” and organizational and technological change related to scale as characteristic of accumulation; and yet he still insists on the falling profit rate due to “competition” of capitals. His argument is scarcely made out. It is not surprising that he should later seek to reinforce the case for a falling profit rate.

We also take note of a serious anomaly emerging already in the late 1840s, one which was never to be resolved. For Marx, both the wage and profit rate tend downwards, as in the “orthodox” classical position; but since he made no appeal to increasing land scarcity, but to the contrary supposed productivity to be rising continually, there seems to be no beneficiary from productivity increase. At this very period Marx seems to have accepted the differential-rent concept based on increasing land scarcity (above, Section C), but presumably this acceptance related only to the principle of the matter; in practice new technology took precedence (see below, p. 226).