The Falling Rate of Profit

E. The Falling Rate of Profit

A major concern of Marx was to obviate an impression that surplus (profit) is yielded by each value component of capital – specifically each value component – since “from the standpoint of capital . . . the profit of 10% on a capital of 100 looks like a flat increase of 10% on each of the value components of the capital – material, instrument, wages,” whereas in fact surplus is generated solely by current labor so that what might be called the “real” profit rate is – using the later terminology – s/v rather than s/(c + v) : “The new value produced in production is indeed only 10 thaler, but according to the real rate these 10 thaler are to be taken as a percentage of the 40 [v], not of the 100 [c + v]. The 60 thaler value has created no new value, only the working day has. . . . The rate of profit of capital therefore by no means expresses the rate at which living labour increases objectified labour; for this increase is simply = to the surplus with which the worker reproduces his wages,

i.e. = the time which he works over and above that which he would have to work to produce his wages” (MECW 28 : 296–7). It also followed that the profit rate s/(c + v) is no index of the profit share in new value added : “If it is said: a capital of 100 yields 10% in a certain period, 5% in another, nothing could be more mistaken than to conclude, as do Carey [1837, 1 : 338–9] and his associates, that in the first case the share of capital in the output was 1/10, therefore that of labour only 9/10; and that in the second case the share of capital was only 1/20, therefore that of labour was 19/20; to conclude, in other words, that because the rate of profit falls, the share of labour rises” (296).

On this matter not only Carey, but also Bastiat and Proudhon and Ricardo had fallen into error “since otherwise he would not have explained the periodical decline of profit itself only by the rise of wages caused by the price of grain (and thus of rent)” (311). The error reflected the fact that “surplus value – in so far as it is indeed the basis of profit but at the same time distinct from profit commonly so-called – has never been analysed.”

Here then we have the charge that Ricardo confused s/v with s/(c + v). We find it again in the course of a commendation of Carey for his insistence against Ricardo that “the rate of profit falls not because of the decrease, but because of the increase in productive power” (478, referring to Carey 1837, 1 : 73–101). But Carey’s objection was based on “incorrect analysis,” and the correct analysis is briefly outlined: “The solution of the whole problem is simply that the rate of profit does not orientate itself by absolute surplus value, but by surplus value in relation to the capital employed; and that the growth of productive power is accompanied by a reduction in the part of capital representing approvisionnement relative to the part representing invariable capital. Hence, when the ratio of total labour to the capital which employes it declines, then the part of labour which appears as surplus labour or surplus value necessarily declines [relatively], too” (478–9). “This inability to explain one of the most striking phenomena of modern production” – the falling profit rate – was “the source of Ricardo’s failure to understand his own principle” (479).

253 Now – again we use later terminology – should the organic composition c/v

E. The Falling Rate of Profit

rise, the profit rate calculated on total capital falls and this even if s/v rises. 25 This outcome is formulated with a little hesitation suggesting its novelty: “Does not the absolute new value [s] diminish, although the relative new value grows [s/v], when more material and instrument, relative to labour, enters into the ele- ments of capital? Relative to a given capital, less living labour is employed. There- fore, even if the excess of [the product of] this living labour over its cost [s/v] is greater . . . does not the absolute new value necessarily become relatively smaller [s/(c + v)] than in the case of the capital which employs less material and instrument of labour . . . and more living labour, for the very reason that relatively more living labour is employed?” (305–6). Though Marx here talks loosely of the components of capital in physical terms, he clearly intended value composition as in what fol- lows immediately regarding the rise in c/v as a reflection of productivity increase: “The increase in productive power which must manifest itself in an increase in the value of the instrument, in the relative share it accounts for in the expenses of capital . . . ” 26

As to why the ratio s/v cannot rise sufficiently to outweigh the depressing effect on the profit rate, Marx merely asserts at this point that it is “improbable” (307). But an earlier observation specifies limits to the rise in s/v with new technology de- pending on the level of technology already achieved: “The smaller the fractional part already which represents necessary labour, the greater the surplus labour, the less can any increase in productivity perceptibly diminish necessary labour. . . . If necessary labour were 1/1,000 and productivity tripled, necessary labour would fall only to 1/3,000 or surplus labour would have grown by only 2/3,000” (265–6). Similarly: “relative surplus value grows much less relative to the productive power and indeed the proportion [between the increase in surplus value and that in productive power] declines the higher the level of productivity already attained” (351). 27

A helpful summary distinguishes between the profit rate “in one or another branch of business,” that can fall “because competition, etc., forces the capitalist

25 Orzech and Groll find it “surprising that so basic a concept as the composition of capital does not explicitly appear” in Grundrisse (1989: 59). I find it inconsequential in the light of the

substantive argument itself which they themselves go on to recognize. See also Oakley 1979: 297. 26 More generally, Marx refers to “the unchanging value part of capital and the variable part (exchanged for labour)” (MECW 28 : 322).

It has been said that Marx in the Grundrisse “was still locked into the classical capital dichotomy rather than developing the one he thought more appropriate in Capital ” (Tribe 1974: 191). This is certainly not the case in the analysis of surplus value as such. But it is true that the distinction fixed – circulating capital is conspicuous in the context of the “circulation process of capital” (see below, Chapter 9.C). 27 In terms of our Chapter 4, p. 121, this statement is acceptable if it is intended to convey that any given increase in productivity cutting costs by β percent annually, will ultimately exceed the percentage impact on surplus per working day since the latter is continuously declining towards (though never reaching) zero.

1857–1858 I: Surplus Value

to sell below value, i.e. to realise a part of surplus labour not for himself but for the buyers of his product,” and the general rate that “cannot fall in this way; it can fall only because of a relative fall in the ratio of surplus labour to necessary labour [and constant capital]. And this, as we have seen earlier, occurs if the ratio [of constant to variable capital] is already very large or, otherwise expressed, the proportion of living labour set in motion by capital is very small – if the part of capital exchanged for living labour is very small relative to that which is exchanged for machinery and raw materials. In that case the general rate of profit may fall, even though absolute surplus labour rises” (363). The Grundrisse also contains references to “checks” to the falling profit rate tendency – “countervailing forces” as they are called (MECW