Monday 23 June 2014

The Law of The Tendency For The Rate of Profit To Fall - Part 19

Fall In the Value Of The Variable Capital (3) 

In Part 17, the situation was examined where the actual quantity of labour-power employed is reduced. That could be because fewer workers are employed, or because simple labour replaces complex labour. The reduction in the quantity employed may be either relative or absolute for any particular industry, but, for the reasons Marx sets out, for the total social capital, it can only ever be a relative reduction in the quantity of labour employed. In other words, a necessary concomitant of the tendency for the rate of profit to fall is that the mass of profit, and the mass of capital increases. The consequence is that for the total social capital, although the variable capital falls relatively, it increases absolutely, so that employment continues to rise, apart from temporary fluctuations.

For any particular capital, the very processes which lie behind the tendency for the rate of profit to fall, also act to increase the mass of capital employed, and, therefore, the mass of labour employed. That is because, as was seen, the mass of profit increases facilitating increased accumulation of capital, but also because the rate of profit itself is increased by that very same process. As Marx puts it,

“These different influences may at one time operate predominantly side by side in space, and at another succeed each other in time. From time to time the conflict of antagonistic agencies finds vent in crises. The crises are always but momentary and forcible solutions of the existing contradictions. They are violent eruptions which for a time restore the disturbed equilibrium.”

(Capital III, Chapter 15, p 249) 

But, there is equally a limit to the quantity of capital that can be employed in a particular sphere, before it simply runs up against the limits of the market to absorb its production. It is not an absolute limit. It varies according to time, and according to conditions of supply and demand. So, for example in respect of time, we saw Marx argue previously,

“When spinning-machines were invented, there was over-production of yarn in relation to weaving. This disproportion disappeared when mechanical looms were introduced into weaving.” (TOSV2 Note p 521)

In other words, the overproduction of yarn here was only a reflection of the inability of the market to absorb all of this production, given the state of development of the weaving industry, which constituted its consumers. Once the latter develops further, it can absorb all of the overproduction and more. These kinds of disproportions are common, as described earlier in relation to industries such as microchips, and shipping, and in relation to the Cobweb Theorem.

But, as Marx points out, that limit is elastic, because at lower market prices, the demand for any commodity will be higher, so the market will absorb a greater quantity of its production. The point here is that the elasticity of demand for any commodity will then determine, how low the market price must fall in order to absorb any given quantity of supply, and this price may be so low as to not be sufficient to cover the cost of production, so not only is the surplus value produced not realised, but the capital itself cannot be fully reproduced.

In other words, the capital has been over accumulated in this sphere; too many use values have been produced compared to what can be sold at market prices high enough to reproduce the capital. Ideally, before such a situation arises, the excess capital should have been allocated to some other sphere of production, where demand for the output would have been sufficient to guarantee market prices that would reproduce the capital consumed. That is exactly the point that Marx makes above both in the Grundrisse, and in Capital III, where he talks about the development of these new lines of production, using the surplus capital, and the relative surplus population.

The new lines of production are labour intensive, and they produce very high rates of profit. As a result, they also validate the capital in the existing industries, because they create the revenues sufficient to generate demand also then for the output of those old industries.

“On the other side, the production of relative surplus value, i.e. production of surplus value based on the increase and development of the productive forces, requires the production of new consumption; requires that the consuming circle within circulation expands as did the productive circle previously. Firstly quantitative expansion of existing consumption; secondly: creation of new needs by propagating existing ones in a wide circle; thirdly: production of new needs and discovery and creation of new use values. In other words, so that the surplus labour gained does not remain a merely quantitative surplus, but rather constantly increases the circle of qualitative differences within labour (hence of surplus labour), makes it more diverse, more internally differentiated...The value of the old industry is preserved by the creation of the fund for a new one in which the relation of capital and labour posits itself in a new form... This creation of new branches of production, i.e. of qualitatively new surplus time, is not merely the division of labour, but is rather the creation, separate from a given production, of labour with a new use value; the development of a constantly expanding and more comprehensive system of different kinds of labour, different kinds of production, to which a constantly expanding and constantly enriched system of needs corresponds.”


The real problem arises when not enough of these new spheres exist. Then instead of there being an overproduction in one sphere, there arises an overproduction in several, which can then cause workers to be laid off, aggregate demand falls, and so there arises a generalised overproduction.

“At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.” (TOSV2 p 505)

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