Friday, 19 January 2018

Friday Night Disco - Mickey's Monkey - Smokey Robinson & The Miracles

Theories of Surplus Value, Part II, Chapter 12 - Part 21

Marx sets out a further table on the assumption that the price of cotton, and method of production stays the same.


Constant capital
£'s
Variable capital
£'s
Surplus- value
£'s
Rate of
surplus-value
%
Rate of profit
%
Product
kilos of yarn
Price per kilo of yarn
£'s
II
75= 1,500 kilos of cotton
25 (18.75 workers)
£12.50
50
12.50
1,500
£0.075
Here, in each kilo, £0.05 represents cotton and £0.025 represents new value created by labour. Of this new value, two-thirds represents wages and one-third surplus value. That gives a rate of profit of 12.5%.

In the final scenario, the value of the variable capital remains constant, but the price of cotton rises by a third.


Constant capital
£'s
Variable capital
£'s
Surplus- value
£'s
Rate of surplus-
value
%
Rate of profit
%
Product
kilos of yarn
Price per Kilo of yarn
£'s
III
£84.21= 1,263.158 kilos of cotton
15.789 = (15.789 workers)
15.789
100
15.789
1,263.158
0.092
In this case, given the same technical composition of capital, this higher price of cotton means that £100 of capital buys less cotton and less labour-power. In order to maintain the same technical composition 1263.158 kilos of cotton is processed by 15.789 workers. That is £84.21 of cotton, and £15.789 in wages. Because wages have remained constant, per worker, the rate of surplus value remains 100%, giving £15.789 of surplus value. The rate of profit is then 15.789%.

Marx summarises each of these cases in a single table.


Constant capital
£'s
Variable capital
£'s
Surplus -value
£'s
Rate of surplus-value
%
Rate of profit
%
Product
kilos of yarn
Price per kilo. of yarn
£'s
Profit
£'s
I
80=1,600 kilos cotton
20=20 workers
20.000
100
20.000
1,600.000
0.075
0.0083
II
75= 1,500 kilos cotton
£25= 18.75 workers
12.500
50
12.500
1,500.000
0.075
0.0083
III
£84.21= 1,263.158 kilos of cotton
£15.789 =15.789 workers
15.789
100
15.789
1,263.158
0.092
0.0125
IV
80= 1,200 kilos of cotton
20= 15 workers
10.000
50
10.000
1,200.000
0.092
0.0125
“The price of the product has changed in III and IV, because the value of constant capital has changed. On the other hand, a change in the value of variable capital does not bring about a change in price because the absolute quantity of immediate labour remains the same and is only differently apportioned between necessary labour and surplus-labour.” (p 287) 

The table indicates what has been set out previously, which is that the profit can fall for various reasons, even where the organic composition of capital remains constant. In II, it falls because wages rise, and so, although the price of the product remains constant, the rate of surplus value falls, the amount of surplus value falls, and so the rate of profit falls.

In III, the price of the product rises from £0.075 to £0.092, because the price of cotton rises. The amount of profit per kilo remains the same, but the amount of surplus value falls because less labour is employed. A greater proportion of the cost of a kilo of yarn consists of cotton. Although the rate of surplus value remains the same, less labour is employed, so a smaller amount of surplus value is produce, which results in a lower rate of profit.

In IV, the price of yarn rises because the price of cotton rises. As the price of cotton and of wages rise by the same proportion, there is no change in the organic composition of capital. But, less labour and cotton are employed. The mass of surplus value falls because less labour is employed, and also because the rate of surplus value falls due to higher wages. As a result, the rate of profit falls because 1) the mass of surplus value falls, because less labour is employed, 2) the rate of surplus value falls, because wages rise, 3) the value of constant capital rises.

“Hence it follows that variations in the value of commodities which enter into constant or variable capital—when the method of production, or the physical composition of capital, remains the same, in other words, when the ratio of immediate and accumulated labour remains constant—do not bring about a change in the organic composition of the capital if they affect variable and constant capital in the same proportion, as in IV (where for instance cotton becomes dearer to the same degree as the wheat which is consumed by the workers). The rate of profit falls here (while the value of constant and variable capital increases), firstly because the rate of surplus-value falls due to the rise in wages, and secondly, because the number of workers decreases.” (p 288)

If the change in price affects only the constant capital, the effect is the same as a rise in the organic composition of capital, Marx says. In other words, even if the mass of surplus value remained the same, as a result of increasing the capital, so as to employ the same quantity of labour and materials, the ratio of the surplus value to constant capital would fall, so the rate of profit would fall. If it affects only the variable capital, less workers and material can be employed, and so the mass of surplus value would fall. But, even if the mass of capital is increased, so that the same mass of labour and materials are employed, a greater portion of the new value created by labour goes to reproducing labour-power, and less goes to surplus value, as the rate of surplus value falls. So, this surplus value falls relative to both c and v, causing the rate of profit again to fall.

One final variant would be for the prices of both constant and variable capital to change, but in different proportions, or the price of one could fall whilst the other rose, and vice versa. But, these would only represent a combination of the effects already discussed.

“I would make the following further observation on the influence of the variation of value upon the organic composition of capital: With capitals in different branches of production—with an otherwise equal physical composition—it is possible that the higher value of the machinery or of the material used, may bring about a difference. For instance, if the cotton, silk, linen and wool [industries] had exactly the same physical composition, the mere difference in the cost of the material used would create such a variation.” (p 289) 

Thursday, 18 January 2018

Theories of Surplus Value, Part II, Chapter 12 - Part 20

Marx then examines the situation where the price of an agricultural product affects the price of means of production and means of consumption equally, so that no change in  the organic composition of capital arises. Marx refers to the situation as previously set out in a table on p 281.


Constant capital
£'s
Variable capital
£'s
Surplus-value
£'s
Rate of surplus-value
%
Rate of profit
%
Product
Price per kilo of yarn
£
I
80= 1,600 kilos of cotton
20=20 workers
20
100
20
1600 kilos. yarn
0.075
II
80=800 kilos of cotton
20=10 workers
10
50
10
800 kilos yarn
0.1375

But, this example from p 281 is wrong, Marx notes. The example shows the situation where the price of cotton doubles, so that where £80 bought 1600 kilos of cotton, it now buys only 800 kilos. As the technical composition of capital is not changed, only 10 workers are required to process this 800 kilos. But, wages have also doubled, so these 10 workers now also cost £20, so the organic composition of capital is unchanged. However, the new value created by these 10 workers is only half that created by 20 workers.

Initially, (I) 20 workers produced £40 of new value. Of this £20 replaces their wages, and £20 constitutes surplus value . But, after the rise in agricultural prices, (II), only 10 workers are employed, and they thereby create £20 of new value. If their wages have doubled to £20, that means they could produce no surplus value.

“If, therefore, the value of the labour-power rose in the same proportion as that of the raw material, i.e., if it doubled, then it would be £20 for 10 workers as compared with £20 for 20 workers before. In this case, there would be no surplus-labour left. For the value, in terms of money, which the 10 workers produce is equal to £20, if that which the 20 produce is equal to £40. This is impossible. If this were the case, the basis of capitalist production would have disappeared.” (p 284) 

Marx, therefore, presents a different example, consistent with capitalist production. In the example, the cost of constant and variable capital rises proportionally, as before, but not by so much that surplus value becomes impossible. Instead of the price of cotton doubling, he proposes a rise of a third. This is illustrated in a further table, from page 285.

Constant capital
£'s
Variable capital
£'s
Surplus-value
£'s
Rate of
surplus-value
%
Rate of
profit
%
Product
kilos of yarn
Price per
kilo of yarn
£'s
IV
80=1,200 kilos of cotton
20 = 15 men
10
50
10
1,200
0.092

£80 now buys 1200 kilos of cotton, instead of 1600 kilos. To process these 1200 kilos, 15 workers are required, rather than 20 to process 1600. But, these 15 workers are now paid wages of £20. The organic composition of capital, therefore, remains 80:20 or 4:1. These 15 workers produce a new value of £30, just as previously 20 workers produced £40 of new value. However, because £20 of this new value is paid labour, only £10 remains as unpaid labour. So, surplus value falls from £20 to £10.

The price per kilo of yarn rises from £0.075 to £0.092, and that is because the price of the cotton contained in it has risen by a third. However, the price of the product itself has not risen by a third. That would have required the price to rise to £0.10 per kilo. The reason is that the rise in the price of cotton does not change the amount of new value created by labour.

“Although the labour has become dearer in the same ratio as the raw material, the quantity of immediate labour contained in 1 lb. of yarn has remained the same, though more of this quantity is now paid and less unpaid labour. This change in the value of wages does not, therefore, in any way affected the value of the lb. of yarn, of the product.” (p 285)

What this does show, however, is that the cotton now accounts for a greater portion of the value of the product, even though the organic composition of capital has not changed.

Wednesday, 17 January 2018

The Law of The Tendency For The Rate of Profit To Fall Is Defunct - Part 4 of 5

Could there not be conditions, however, where fixed capital, i.e. machines/robots, simply replace labour, so that less labour is employed absolutely, and where the mass of surplus value, thereby also declines, even if the rate of surplus value rises? Yes, there could. That is the thesis that Paul Mason has put forward in his book “Post-Capitalism”, and Marx himself, as Paul points out, undertakes a thought experiment, in his “Fragment on Machines”, in The Grundrisse, to that effect. However, the question is not whether such a possibility exists theoretically, but whether that theoretical possibility reflects current reality. It doesn't.

The basic argument is suggested by Marx in Capital III, in discussing the Law, when he points out that there are limits to the extent that rising productivity, which raises the rate of surplus value, can counterbalance the fall in the mass of surplus value produced, as a consequence of a fall in the mass of labour employed. As Marx says, 2 workers working a 24 hour day, of which 23 hours is surplus value, produce less surplus value than 48 workers working a 24 hour day, of which only 1 hour is surplus value. But, Marx's own explication of the Law is one in which, the mass of labour rises, not falls. The mass of employed labour only falls relative to the total capital, and total value of output. And, along with it, the mass of surplus value produced also rises absolutely. It again, only falls relative to the value of total output, and relative to the capital laid out to produce it.

If we take the example of the hotel, as described in Part 3, if the cost of building a hotel halves, so that now a 200 room hotel can be built for the same cost as previously was required for a 100 room hotel, and if new machines, enable the existing workers to be able to service these 200 rooms, then there is, in fact, no change in the organic composition of capital, and no basis for any change in the rate of profit. The only thing that happens here is that the value of a room halves, so that the value of each room, now also contains only half the value of fixed capital, wages, and profit, as was previously the case. Yet, it is as though the new machines replaced half the workers, because the same number of workers now service twice as many rooms. This is effectively no different to the examples that Marx gives, whereby the productivity of labour rises, because it is employed on more fertile land.

Put another way, had only a 100 room hotel been built, it would have had a value of only £50,000, and only 5 workers would have been required. Wages would fall to £5,000, and £5,000 of profit would now be produced. The mass of profit is thereby halved, but the rate of profit remains the same. But, now, £55,000 of capital has been released, and there is nothing stopping this capital being employed in some other sphere, for example, in a hotel elsewhere, in which case the mass of profit would again rise to its former level. But, also, as Marx describes in Theories of Surplus Value, this rise in social productivity necessarily has other consequences. It not only reduces the value of fixed and circulating constant capital, it also reduces the value of labour-power, and thereby raises the rate of surplus value. In the above example, the rate of profit remains the same, but that is because no change in the rate of surplus value is assumed. If we take into account the fall in the value of labour-power that also arises from this rise in productivity, then the rate of surplus value must rise, so that the rate of profit then also rises.

And, in fact, I have set this out, previously in discussing Paul Mason's argument, and Marx's discussion on the role of machines, as set out in Theories of Surplus Value.

As Marx points out in Capital I, there is a difference between a situation where a machine is introduced, which replaces existing workers, and a machine that is introduced that simply does the work that workers otherwise might have done.

In Chapter 15, he writes,

“If it be said that 100 millions of people would be required in England to spin with the old spinning-wheel the cotton that is now spun with mules by 500,000 people, this does not mean that the mules took the place of those millions who never existed. It means only this, that many millions of workpeople would be required to replace the spinning machinery. If, on the other hand, we say, that in England the power-loom threw 800,000 weavers on the streets, we do not refer to existing machinery, that would have to be replaced by a definite number of workpeople, but to a number of weavers in existence who were actually replaced or displaced by the looms.”

And, the important distinction here, as Marx points out is also a question of time. The 800,000 weavers actually replaced by power-looms, could not immediately be employed in some other work, as the bourgeois apologists suggested, for example, producing power-looms. But, that does not mean that the rise in productivity that the power-loom, and other such technologies brought with them, did not, thereby raise the rate of surplus-value, make possible the greater accumulation of capital, and thereby the future employment of even greater masses of labour; nor did it mean that in cheapening these elements of capital, via moral deprecation, it does not again make possible the employment of greater masses of that capital; nor did it mean that in cheapening the value of clothing and other commodities that comprise wage goods, it did not reduce the value of labour-power, so that a given amount of capital is able to employ a greater mass of labour than previously. It is only, as Marx sets out, that it is usually not the displaced workers who fill these additional jobs, but their children.

If we examine the reality of the 150 years since Marx wrote Capital, or the 200 or so years since the inception of industrial capitalism, despite massive transformations in technology, and the revolutionising or production, we have not seen a continual growth of unemployment, but the opposite. It's certainly true that this development of technology has seen the agricultural workforce decline massively. In the mid-19th century around 2 million people worked in agriculture, in the UK, which has now fallen to around half a million. As a proportion of the total workforce, however, the number employed in agriculture has fallen far more dramatically, down to just around 1.3% of the workforce. Yet, this decline has not resulted in all of those agricultural workers being unemployed. In the 19th century, as the proportion of agricultural workers declined, the proportion of industrial workers rose. And, indeed, the absolute number of industrial workers rose too.

Marx notes that, as technological development took place in industry, this too resulted in displaced workers being employed unproductively as domestic servants etc. Yet, this too was only a temporary situation, because as that same technological development made possible a further accumulation of industrial capital, so the number of workers increased absolutely again, and technology was introduced to make domestic labour more productive too, so that the middle classes required fewer domestic servants, and women were also freed from the chains of domestic labour, (or at least those chains were lengthened) so as to be recruited into the ranks of the post-war workforce, as it expanded rapidly.

And, more recently, that same kind of transformation has occurred, with technological developments reducing the proportion of the workforce employed in manufacturing industry, as the the proportion employed in service industry has risen. It is a development I predicted, and analysed more than 30 years ago .

In fact, since the 1980's, alongside a massive rise in technological development, and rise in productivity, we have seen not a rise in global mass unemployment, as workers are displaced, but a more than doubling of the global working-class, making it for the first time the largest class on the planet. Since 2000 alone, we have seen the global working class increase by around a third, and including in newly developed economies like China, the number employed in service industry has risen as part of that process.

Rather than the situation implied in Marx's statement above, therefore, whereby 48 workers, producing only 1 hour of surplus value each, produce more surplus value than 2 workers producing 23 hours of surplus value each, what we have is a growing mass of employed labour, each of which is producing a growing mass and proportion of surplus value. It is more like the situation is one in which the rise in productivity, and subsequent rise in the rate of surplus value, enables a greater accumulation of capital, a greater employment of labour and so a greater production of surplus value and profit.

Theories of Surplus Value, Part II, Chapter 12 - Part 19

This situation where a rise in wages – or a rise in the price of materials – causes a squeeze on  profits, is then the opposite of the condition that Marx describes as leading to  the law of the tendency for the rate of profit to fall. For the latter to operate, social productivity must be rising, so that the  organic composition of capital rises, as a consequence of a rise in the technical as opposed to value composition of capital. It implies that this rising productivity actually reduces the unit value of materials, and fixed capital, as well as reducing the value of labour-power, and thereby increasing  the rate of surplus value. By contrast, the situation that Marx describes here, where effectively productivity has fallen, or else, a sharp rise in demand, as capital expands rapidly, causes the prices of materials, and wages to rise, leads to a squeeze on profits. This is the situation that Marx describes in Chapter 6 of Capital III, and again in Chapter 15, where he sets this out as the basis of a crisis of overproduction of capital.

“There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the  variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.” 

In fact, it is in response to these conditions, where social productivity has fallen or become relatively stagnant, and where capital has expanded extensively, on the basis of the existing technologies, and which has thereby led to the situation where labour supplies have been relatively used up, causing wages to rise, that capital turns to the need to develop new technologies, to raise the level of social productivity, and thereby create a condition of relative surplus population, pushing down wages and raising the rate of surplus value, that leads to an actual rise in the technical and consequently organic composition of capital, which then does create the conditions for the law of the tendency for the rate of profit to fall. As Marx puts it, by contrast to the condition where profits are squeezed, as a result of rising wages, and a falling rate of surplus value, the law of the tendency for the rate of profit to fall depends upon rising productivity, falling wages, and a rising rate of surplus value.

“In relation to employed  labour-power the development of the productivity again reveals itself in two ways: First, in the increase of surplus-labour, i.e., the reduction of the necessary labour-time required for the reproduction of labour-power. Secondly, in the decrease of the quantity of labour-power (the number of labourers) generally employed to set in motion a given capital.” (ibid) 

This same process of raising social productivity, via technological innovation, and intensive accumulation, reduces the value of the existing fixed capital stock, and reduces the unit value of materials. It creates the basis for a future rise in profits and increased capital accumulation.

“The increase in the productiveness (which, moreover, we repeat, always goes hand in hand with a depreciation of the available capital) can directly only increase the value of the existing capital if by raising the rate of profit it increases that portion of the value of the annual product which is reconverted into capital. As concerns the productivity of labour, this can only occur (since this productivity has nothing direct to do with the value of the existing capital) by raising the relative surplus-value, or reducing the value of the constant capital, so that the commodities which enter either the reproduction of labour-power, or the elements of constant capital, are cheapened. Both imply a depreciation of the existing capital, and both go hand in hand with a reduction of the variable capital in relation to the constant. Both cause a fall in the rate of profit, and both slow it down. Furthermore, inasmuch as an increased rate of profit causes a greater demand for labour, it tends to increase the working population and thus the material, whose exploitation makes real capital out of capital.” (ibid)

The Law of the Tendency for the Rate of Profit to Fall, therefore, is not a cause of crises of overproduction, according to Marx, but is the means for resolving them, by raising the level of social productivity, creating a relative surplus population, reducing wages, and raising the rate of surplus value, whilst simultaneously depreciating the value of the existing fixed capital stock – moral depreciation – and reducing the unit value of materials, although increasing the mass of materials processed by any given quantity of labour.

Moreover, as Marx also states, reiterating a point made in the Grundrisse, in relation to the Civilising Mission of Capital, by raising productivity, labour and capital is releases to enter new spheres of production, providing both an outlet for capital investment, and new forms of consumption, on which revenue can be expended. The former tend to be in areas where the organic composition of capital is low, and rate of profit high, as set out in Capital III, Chapter 14, whilst the latter resolves the contradiction that at the same time that the mass of existing  use values rises, consumers are prepared to pay less and less for additional quantities of them, so preventing produced surplus value from being realised as profit.

“Indirectly, however, the development of the productivity of labour contributes to the increase of the value of the existing capital by increasing the mass and variety of use-values in which the same  exchange-value is represented and which form the material substance, i.e. , the material elements of capital, the material objects making up the constant capital directly, and the variable capital at least indirectly. More products which may be converted into capital, whatever their exchange-value, are created with the same capital and the same labour. These products may serve to absorb additional labour, hence also additional surplus-labour, and therefore create additional capital. The amount of labour which a capital can command does not depend on its value, but on the mass of raw and auxiliary materials, machinery and elements of fixed capital and necessities of life, all of which it comprises, whatever their value may be. As the mass of the labour employed, and thus of surplus-labour increases, there is also a growth in the value of the reproduced capital and in the surplus-value newly added to it.” (ibid) 

Tuesday, 16 January 2018

Theories of Surplus Value, Part II, Chapter 12 - Part 18

In the examples he has given, and which I have represented here, the basis has been that the technical composition of capital remains constant. In other words, if 50 units of material require 50 units of labour to process them, this relation remains constant. It is only because wages rise, as Marx says, that the value-composition, of v:c, rises. Even if the consequence is that less c and v can then be employed, as in (3), the ratio of v:c rises. Because the rate of surplus value falls, the mass of surplus value falls relative to the constant capital. So, originally,

c 50 + v 50 + s 50. Here s represents 100% of c.

c 40 + v 60 + s 20. Here s represents only 50% of c.

In other words, c has fallen because higher wages mean that the £100 of capital can now employ only 40 units of c, and 40 units of v. The 40 units of v now cost £60, and as they only create the same £80 of new value, surplus value drops to £20. Had the rate of surplus value remained constant, then s would also have been £40, and still represented 100% of c. But, the rate of surplus value has fallen due to the rise in wages, which causes a squeeze on profits. The mass of surplus value has consequently fallen to 20, which is only 50% of c. 

This squeeze on profits due to a rise in costs, particularly of wages, is the explanation for the law of falling profits developed by Marx's predecessors, such as Smith, Ricardo and Malthus.  They explain this squeeze in different ways.  For Smith, it is the fact that capital accumulates faster than the supply of labour, so the relative oversupply of labour disappears causing wages to rise.  For Ricardo and Malthus it is that industrial capital accumulates faster than agricultural capital, and diminishing returns in agriculture, thereby causes agricultural prices and rents to rise, which leads to rising wages, and a squeeze on profits.  Marx demonstrates that whilst all of these things may arise as a temporary phenomena, which can lead to a crisis of overproduction, they are not the explanation for the long-term tendency for the rate of profit to fall.  Quite the opposite, Marx says.  All of these factors, which cause a profits squeeze are the result of a fall in social productivity, and a reduction in the rate of surplus value.  By contrast, the law of the tendency for the rate of profit to fall is driven by rising social productivity, an increase in the rate of surplus value, and an increase in the mass of surplus value.  It arises, because capital seeks to address the problems of a squeeze on profits caused by falling social productivity, and reduction in the rate of surplus value, by engaging in technical innovation, of  intensive accumulation in new labour-saving technologies that create a relative surplus population, and so cause lower wages, that raise the rate and mass of surplus value, and that reduce the value of circulating constant capital, and a large  moral depreciation of the  fixed capital stock.

“These variations in the value therefore always affect the surplus-value itself, whose absolute amount decreases in both cases because either one or both of its two factors fall. In one case it decreases because the number of workers decreases while the rate of surplus-value remains the same, in the other, because both the rate decreases and the number of workers employed by a capital of £100 decreases.” (p 283)

If the change in price affects only the constant capital, the effect is the same as a rise in the organic composition, Marx says. In other words, even if the mass of surplus value remained the same, as a result of increasing the capital, so as to employ the same quantity of labour and material, the ratio of the surplus value to constant capital would fall, so the rate of profit would fall. If it affects only the variable capital, less workers and material can be employed, and so the mass of surplus value would fall. But, even if the mass of capital is increased so that the same mass of labour and materials are employed, a greater portion of the new value created by labour goes to reproducing the  labour-power, and less goes to surplus value, so the rate of surplus value falls. So, this surplus value falls relative to both c and v, causing the rate of profit to fall again.

Monday, 15 January 2018

Theories of Surplus Value, Part II, Chapter 12 - Part 17

If the technical composition of capital remains the same, but the price of the constant capital rises, Marx says, it “brings about the same variation in the composition of capital as if the value of constant capital had remained the same, but a greater amount of capital of unchanged value (thus also a greater capital value) had been employed, in proportion to the capital laid out in labour.” (p 282) Superficially, this is true, but in reality the latter condition could only apply if the level of productivity had risen, so that a given mass of labour processed a larger mass of material. It would imply a rise in the technical composition, and consequently organic composition of capital.

For example, if we take (2),

60 c (40) + 40 v (40) + 40 s = 140, and 120 units of output, that gives a price per unit of £1.166.

However, if the 60 c was the result of no change in the price of c, but an increase in the quantity of material processed, it would give,

60 c (60) + 40 v (40) + 40 s = 140, and 180 units of output, with a price per unit of £0.778. Where initially 50 units of labour processed 50 units of materials into 150 units of output, now 40 units of labour would process 60 units of material into 180 units of output, representing a rise in productivity from 1:1 to 1.5:1, or 50%.

What is the same is that,

“The consequence is necessarily a fall in profit.” (p 282)

In both cases, the rate of profit falls from 50 s/(50 c + 50 v) = 50% to 40 s/(60 c + 40 v) = 40%.

“Conversely, a change in the value of the variable capital—in this case a rise—increases the proportion of variable to constant capital and therefore also the percentage of variable capital, or its proportional share in the total capital. Nevertheless, the rate of profit falls here, instead of rising, for the method of production has remained the same.” (p 282)

In other words, the ratio of c:v has fallen, but this causes a lower rather than higher rate of profit, which is what would be expected when a lower ratio of c:v reflects a lower organic composition of capital. The reason is that it is not the organic composition that has fallen, here, but only the value composition. The consequence of the higher wages is that less labour is able to be set in motion, and so produces less surplus value. But, also, a larger portion of the new value produced goes to reproduce the variable capital, and less goes to surplus value, i.e. the rate of surplus value falls.

Marx says,

“The variable capital has increased in proportion to constant capital and hence also in proportion to total capital, although the amount of labour employed in proportion to the amount of constant capital has decreased. The surplus-value consequently falls and with it the rate of profit. Previously, the rate of surplus-value remained the same, while the rate of profit fell, because the variable capital fell in proportion to the constant capital and hence in proportion to the total capital, or the surplus-value fell because the number of workers decreased, its multiplier decreased, while the rate remained the same. This time the rate of profit falls because the variable capital rises in proportion to the constant capital, hence also to the total capital; this rise in variable capital is, however, accompanied by a fall in the amount of labour employed (of labour employed by the same capital), in other words, the surplus-value falls, because its decreasing rate is bound up with the decreasing amount of labour employed. The paid labour has increased in proportion to the constant capital, but the total quantity of labour employed has decreased.” (p 283) 

Sunday, 14 January 2018

The Law of The Tendency For The Rate of Profit To Fall Is Defunct - Part 3 of 5

But, its clear from this that where an economy is dominated by service industry, rather than manufacturing, the whole basis for the Law's operation ceases to exist, because any rise in productivity, whilst reducing the value of commodities, including those that comprise constant capital, and raising the rate of surplus value, and consequently the mass of profit, does not result in any significant increase in the mass of materials processed, and consequent rise in the value of circulating constant capital, because processed materials form only a small portion of the total value production of the economy.

For example, suppose that the capital is a hotel. As a result of a rise in social productivity, the cost of building hotels falls, and the effectiveness of the machines used by hotel staff also increases. The same amount of fixed capital now provides for a larger hotel, capable of servicing a larger number of occupants, and the more effective machinery enables the existing workers to meet the needs of these occupants. Making a similar comparison we might then have:

Original Capital

£100,000 fixed capital

£10,000 Wages

£10,000 Surplus Value

The hotel has 100 rooms, and the value per room is then 120,000/100 = £1,200.

A number of scenarios are possible. Firstly, it might be that the number of rooms doubles to 200, and there is a corresponding rise in the efficiency of machines used by hotel workers so they can service these 200 rooms. In that case, there is no change in the organic composition of capital, or in the rate of surplus value. The only consequence is that the value of a room falls to £600, and the value of each room, now comprises only half the amount of value of fixed capital, wages and profit as previously was the case. The rate of profit is 10/110 = 9.1%.

Secondly, the rise in social productivity causes the value of labour-power to fall, so that wages fall to £8,000, and surplus value rises to £12,000. In that case, the rate of profit rises to 12/108 = 11.11%.

Thirdly, the rise in social productivity reduces the value of the hotel, but causes no change in the productivity of hotel labour, so that we have:-

£50,000 fixed capital

£10,000 wages

£10,000 surplus value

The number of rooms remains 100, and the value per room falls to £700. But, now, the rate of profit rises to 10/60 = 16.66%, as the organic composition of capital falls.

Fourthly, as Marx points out in Theories of Surplus Value, Chapter 13, the relation between constant and variable capital is a function of the technical composition of capital, not the value composition. So, if, as above, there is no change in the productivity of hotel labour, and the number of hotel rooms remains 100, the same number of hotel workers will be employed to service those rooms. However, Marx points out, if the value of constant capital falls, that means that each capital has capital released, and this released capital can then be used to expand output.

If the cost of building a 100 room hotel falls from £100,000 to £50,000, £50,000 of capital is released. Suppose, then that £40,000 of this released capital is used to add 80 rooms, and £8,000 is used to employ 9 additional workers to service these rooms. In that case, we would have:-

£90,000 fixed capital

£18,000 wages

£18,000 surplus value.

The mass of profit, thereby rises by 80%. The rate of profit is 18/108 = 16.66%.

Finally, if the rise in social productivity causes the value of labour-power to fall, we might have:-

Fixed capital £90,000

Wages £14,400

Surplus Value £21,600

The rate of profit is then 20.69%.

This same kind of scenario exists for all service industries. A lower cost of fixed capital in media production, means that a given amount of capital can employ more fixed capital, and also a greater mass of labour. A greater mass of labour with the same rate of surplus value, means a greater mass of profit, and no reduction in the rate of profit. Or it may be that more highly skilled complex labour is employed with the same effect. But, any rise in social productivity that reduces the value of labour-power, and so raises the rate of surplus value, not only increases the mass of surplus value, as a result of more labour being employed, but also increases the rate of surplus value, and consequently also the rate of profit. Indeed, as Marx sets out in TOSV Chapter 13, this fall in the value of labour-power, also enables more labour and constant capital to be employed, and that in turn results in an increase in the mass of profit produced.

This same situation exists, for example, in relation to service industries such as the provision of telecommunications, or the provision of other utilities such as water, gas and electricity. In each case, because production does not involve the processing of raw materials, but merely involves the provision of some labour service, the consequence is that there is no proportional rise in the value of circulating constant capital, in total production, and no tendency, therefore, for the rate of profit to fall. Indeed, as the rise in social productivity reduces the value of labour-power and raises the rate of surplus value, so there is a tendency for the rate of profit to rise, and the release of capital means that more labour absolutely is employed, so that the mass of surplus value produced, also rises.

Theories of Surplus Value, Part II, Chapter 12 - Part 16

The fall in the value of the product from £150 to £120 arises from two causes. First, less material is processed and so passes £10 less value into the final product. Secondly, less labour is employed, and so £20 less new value is created. The ratio of c:v falls from 1:1 to 1:1.5, and usually a reduction in the ratio of c:v implies a rise in the rate of profit. But, that is only where that is a consequence of a lower organic composition of capital, due to lower social productivity. But, here the lower ratio is due to a higher cost of labour, which also results in a lower rate of surplus value. As Marx puts it,

“The rate of surplus-value—of surplus-labour—falls more than the ratio of variable to constant capital. For the same number of workers as before, that is the same absolute quantity of labour, needs to be employed in order to set in motion the same amount of constant capital. Of this absolute quantity of labour more, however, is necessary labour and less of it is surplus-labour. Thus the same quantity of labour must be paid for more dearly. Of the same capital—£100 for instance—less can thus be laid out in constant capital, since more has to be laid out in variable capital to set in motion a smaller constant capital.” (p 278)

It is then clear that, earlier, Marx simply misspoke when he said, “this must always bring about a rise in the rate of profit” (loc.cit.), having meant to say “this must always bring about a fall in the rate of profit”. Whenever the technical composition of capital remains constant, but the rate of surplus value falls, the rate of profit must also fall. However, this fall in the rate of profit arises due to a squeeze on profits caused by rising wages, which is the opposite of the situation that Marx describes in relation to the tendency for the rate of profit to fall. In that case, Marx explains that the rate of profit falls, not because the rate of surplus value is falling, but because it is rising; that productivity is rising, and so a greater mass of surplus value is produced. But, this rise in productivity then means that this rise in the mass of surplus value produced is less than the rise in the capital laid out to produce it. 

Even where the value of the product remains constant, the price per unit of this product may rise. If we take the previous examples, in turn, the effects can be seen.

The units of c,v and of output are indicated in ()'s. 

50 c (50) + 50 v (50) + 50 s = 150 (150). Price per unit of output £1. 

60 c (40) + 40 v (40) + 40 s = 140 (120). Price per unit of output £1.166 

40 c (40) + 60 v (40) + 20 s = 120 (120). Price per unit of output £1. 

50 c (40) + 50 v (40) + 30 s = 130 (120). Price per unit of output £1.083. 

The determinant of the number of units of output, is the quantity of material processed. In each case, 2 – 4, the quantity of material processed has fallen by 20%. The output is 3 units for each unit of material processed, giving 150 units in (1), and 120 units in (2 – 4).

In (2), the price per unit rises from £1 to £1.166, because the price of each unit of c contained within it has risen by 50%.

In (3), the price per unit remains £1, because there has been no change in the value of c. The total value of c only falls from 50 to 40, because less material itself is processed. The price of each unit of c processed and contained in the final output remains unchanged. In addition, the amount of new value created by each worker employed remains unchanged. The total new value created falls from 100 to 80 only because 40 rather than 50 units of labour are employed, as a result of the higher level of wages. But, those higher wages have no impact on the amount of new value produced by each worker. They only impact the division of that new value between variable capital and surplus value.

In (4), the rise in the price of c and v is the same, 25%, and so the ratio of c:v remains constant. As in (3), the rise in the value of v has no effect on the value of the product, or the price per unit. It only affects the division of the new value between v and s. The rise in the price per unit arises as in (2), from the rise in the price of c, because, although the overall value of the product falls from £150 to £130, because only £80 rathre than £100 of new value is produced, because fewer workers are employed, the fall in the quantity of output is greater, from 150 units to 120 units.

Saturday, 13 January 2018

Theories of Surplus Value, Part II, Chapter 12 - Part 15

Marx proceeds on the basis of this last scenario, whereby c and v are employed in the same physical proportions, and where the prices of each rise by the same amount. He takes the situation in respect of the total social capital, so as to equate the total value with the total price of production. So, he says,

“Let the value of the product of a capital £80 c + £20 v be £120. Considering capital as a whole, the value of the product and its cost-price coincide, for the difference is equalised out for the aggregate capital [of the country].” (p 277)

Bear in mind that when Marx refers to “cost-price” here, he means price of production (k + p), as defined in Capital III, and not cost-price as defined there, i.e. k, or c + v. The example above shows that where the price of c + v rises by 25%, the consequence is that the value of the product falls, from 150 to 130. The reason for this is that less labour is employed (40 units rather than 50 units), and so less new value is created.  When talking about product here, we mean the the output. The value of the output falls, but because the quantity of output falls, the value of each unit of output rises. The value of output falls from 150 to 130, but the quantity of output falls by 20%. So, if initially 50 units were produced, the value of each unit was £3. Now only 40 units are produced, and the value of each unit rises to £3.25.

Marx proceeds on the basis that the same quantities of c and v are employed. Using our example, that means that 50 units of c and v are employed, but the value of these would now be c 62.5 + v 62.5. On the assumption that 50 units of labour produced £100 of new value, and this has not changed, the surplus value amounts to £37.50 (£100 - £62.50). That gives a total product of £162.50. The rate of profit is 30%.

This is a different conclusion to that arrived at by Marx, in his example. He has the price of c and v rising by 10% from £80 to £88, and from £20 to £22. That gives a total capital of £110. But, Marx assumes that the value of the total social product remains constant at £120. Its clear that this cannot be right. On the basis of Marx's example, the employed labour produced £40 of new value, divided 20 v + 20 s. If the same mass of labour is employed, this same amount of new value is created, but now divided 22 v + 18 s. In that case, the total value of the product would be 88 c + 22 v + 18 s = £128.

Th editors, at the IML offer an explanation of this discrepancy in Note 87 on page 277. However, this does not seem appropriate, as Marx, in this section makes no such reference to a deduction of rent. Rather his example speaks of the total social product. In that case, the value of the total social product would rise in the way I have described, and any deduction of rent from it would not, in any case, alter the value of the total product, or the mass of surplus value produced. It would simply affect the distribution of the product and the division of the surplus value between profit and rent. The other explanation here would be that the value of the product is initially £120, but represents a surplus profit of £10 taken as rent. So, as the cost of production rises, the surplus profit and rent falls accordingly, leaving the value at £120.

Marx's example would apply where the price of c remains constant, but the price of v rises. In that case, using our original example, the value of c would remain £50, but the value of v would rise to £62.50, whilst s would fall to £37.50. In that case, the value of the product would remain constant at c 50 + v 62.50 + s 37.50 = £150. But, it would have required a capital of £112.50 rather than £100 to produce. The rate of profit would be 33.3%.

“If, therefore, a change in an element of cost, here a rise in price—a rise in value—only alters (the necessary) wage, then the following takes place: Firstly, the rate of surplus-value falls; secondly, with a given capital, less constant capital, less raw material and machinery, can be employed.” (p 278)

However, the conclusion that Marx then draws is clearly wrong. He goes on,

“The absolute amount of this part of the capital decreases in proportion to the variable capital, and provided other conditions remain the same, this must always bring about a rise in the rate of profit (if the value of constant capital remains the same).” (p 278)

The opposite is the case, and it appears to me from Marx's further comments that he may have simply made a simple error saying rise here where he meant to say fall. In fact, that is what he does say a few lines further on, where he says,

“Provided, therefore, that the organic composition of the capital remains the same, in so far as its physical component parts regarded as use-values are concerned; that is, if change in the composition of the capital is not due to a change in the method of production within the sphere in which the capital is invested, but only to a rise in the value of the labour-power and hence to a rise in the necessary wage, which is equal to a decrease in surplus-labour or the rate of surplus-value, which in this case can be neither partly nor wholly neutralised by an increase in the number of workers employed by a capital of given size—for instance £ 100—then the fall in the rate of profit is simply due to the fall in surplus-value itself.” (p 279) 

This, in fact, is important for the later critique of Ricardo's theory of the falling rate of profit , because it highlights the two different and opposing causes of such a fall. On the one hand, Marx's explanation of the tendency for the rate of profit to fall is based on rising social productivity, causing the organic composition of capital to rise, as a greater mass of c is employed relative to v, i.e. a given mass of labour processes a larger mass of material. Consequently, even as this rise in productivity causes the unit value of that material to fall, the overall value of c (the mass of material processed) rises relative to v. However, the opposite situation is described here, and is the basis of Ricardo's theory of falling profits. It is that productivity falls, and the value of v rises, causing a profits squeeze as s falls. Taking Marx's example, the technical and so organic composition of capital remains the same, but the wages rise so that the value composition of capital falls. A given amount of capital then employs less constant and variable capital. Using our earlier example, originally we had £100 capital employing 50 units each of c and v. So,

c 50 + v 50 + s 50 = 150, r' = 50%.

A 50% rise in wages meant that only 40 units of c and v can be employed. But, the 40 units of labour now cost £60.

c 40 + v 60 + s 20 = 120, r' = 20%.

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Friday, 12 January 2018

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Theories of Surplus Value, Part II, Chapter 12 - Part 14

A change in the organic composition, therefore, requires a change in social productivity, which brings about this change in the technical composition. Assuming no change in the technical composition of capital, and so no change in its organic composition, a change in the value composition could occur in a number of ways. As Marx set out in Capital III, a change in the price of the commodities that comprise the constant capital, and variable capital may be the result of a change in the value/price of production of those commodities, or else may be the consequence of merely short-term, movements of market prices. Either way, the immediate effect is the same.

If the price of means of production rises, this will cause the value composition to rise. For any quantity of capital, less means of production can be bought. Suppose there is £100 of capital, and currently 50 units of constant capital and 50 units of variable capital are employed. Each unit has a value of £1. However, if the value of means of production rises to £1.50, fewer units can be bought, or if the same quantity is bought, less capital is available to buy labour-power. Assuming no change in the technical composition, the same number of units of constant and variable capital must be employed. In that case, assuming no change in the value of means of consumption, 40 units of each would be employed, with the value of c rising to £60, and v falling to £40, so that c:v rises from 1:1 to 1.5:1.

If the price of means of consumption rises, so that the value of labour-power rises, the opposite occur. So, £100 of capital would buy 40 units of each, but now the value of c would be £40, with the value of v rising to £60, so that c:v falls to 1:1.5. If the price of means of production and means of consumption both rise by the same amount, fewer units of both are employed, but with no change in the relation of c:v. For, example, if the price of both rises to £1.25, again 40 units of each are employed, and this amounts to £50 c + £50 v, whilst c:v remains 1:1.

As Marx points out, such a situation would be unusual.

“This may never occur in practice. A rise in the price of certain agricultural products such as wheat etc., raises the (necessary) wage and the raw material (for instance seeds). A rise in coal prices raises the necessary wage and the auxiliary material of most industries. While in the first case the rise in wages occurs in all branches of industry, that in raw materials occurs only in some. With coal, the proportion in which it enters into wages is lower than that in which it enters into production. As regards total capital, the change in the value of coal and wheat is thus hardly likely to affect both elements of capital equally.” (p 276-7)

The consequences of these changes will, however, be different. In the first case, where the price of materials rises, this causes less of both c and v to be employed. Marx assumes no change in the working-day, so the rate of surplus value remains the same. So, if we assume a 100% rate of surplus value, the initial position would be

c 50 + v 50 + s 50 = 150, r' = 50%

We would now have, where the price of c rises,

c 60 + v 40 + s 40 = 140, r' = 40%,

whereas,, if the price of v rises,

c 40 + v 60 + s 20 = 120, r' = 20%.

The reason for the difference is that where the price of c rises, this causes the mass of variable-capital to fall, and with a constant rate of surplus value, the mass of surplus value also falls, so the rate of profit falls. However, where the price of v rises, this has two consequences. Firstly, both less constant and variable capital are employed. The smaller mass of v produces a smaller mass of surplus value. But, in addition to this, the rate of surplus value itself falls as a result of the rise in wages. Forty units of labour is employed, and with no change in social productivity, produces the same £80 of new value. But, now £60 of this new value goes to reproduce v, leaving only £20 as s.

Where the price of both c and v rise in the same proportion, we would have.

C 50 + v 50 + s 30 = 130, r' 30%.

Thursday, 11 January 2018

The Law of The Tendency For The Rate of Profit To Fall Is Defunct - Part 2 of 5

The basis of Marx's law is this. A period of intensive accumulation is initiated, because existing supplies of labour-power have started to be used up, causing wages to rise, and the rate of surplus value to fall, which causes a squeeze on profits. This squeeze on profits is the Smithian explanation of the Law of a falling rate of profit.  In fact, the intensive accumulation is a response to it, and it is the intensive accumulation, which provides the basis for Marx's Law of the Tendency for the Rate of Profit to Fall.  This period of intensive accumulation sees newer labour-saving machines introduced, to replace the existing machines. Each of these newer machines, thereby replaces several of the older machines. This is also the basis for not only the proportion of labour in total output falling, but also the proportion attributable to fixed capital falling, in total output. As Marx says, in Capital III, Chapter 15,

“While the circulating part of constant capital, such as raw materials, etc., continually increases its mass in proportion to the productivity of labour, this is not the case with fixed capital, such as buildings, machinery, and lighting and heating facilities, etc. Although in absolute terms a machine becomes dearer with the growth of its bodily mass, it becomes relatively cheaper. If five labourers produce ten times as much of a commodity as before, this does not increase the outlay for fixed capital ten-fold; although the value of this part of constant capital increases with the development of the productiveness, it does not by any means increase in the same proportion. We have frequently pointed out the difference in the ratio of constant to variable capital as expressed in the fall of the rate of profit, and the difference in the same ratio as expressed in relation to the individual commodity and its price with the development of the productivity of labour.” 

In this context, the proportion of total value accounted for by fixed capital falls for two reasons. Firstly, the rise in productivity reduces the value of the machine itself, as a consequence of moral depreciation. Either greater productivity enables the machine itself to be produced with less labour, or else a new more productive machine is introduced, which requires only the same amount of labour to produce. Secondly, the more advanced machine produces a much larger volume of output, so that its value is spread across this larger quantity, and thereby diminished, whilst the amount of material processed by the machine and the labour increases.

Suppose a current machine costs £1,000, and lasts for a year. In a factory, ten of these machines are employed, and ten workers operate them. The workers are each paid £1,000 in wages, and the rate of surplus value is 100%. They process 10,000 kilos of yarn each, with a value of £6,000 into 10,000 metres of cloth. For the factory's output, we then have:-

Machines £10,000

Materials £60,000

Wages £10,000

Surplus Value £10,000.

The rate of profit is 1/8 = 12.5%. The price per metre is £90,000/100,000 = £0.90. The proportion of fixed capital of total output is 1/9 = 11.1%, or £0.10 per metre. Materials account for 6/9 of total output value = 66.6%, or £0.60 per metre. Wages accounts for 11.1% of total output value, or £0.10 per metre, and the same for profit.

Now, assume that a new machine is introduced that costs £1,000, but processes 50% more yarn. Now we have,

Machines £10,000

Materials £90,000

Wages £10,000

Surplus Value £10,000

Total output rises to 150,000 metres. The value per metre falls to 120/150 = £0.80. The proportion of fixed capital in total output value falls to 1/12 = 8.33%, or £0.067 per metre. The proportion of wages in total output value, and of surplus value in total output value similarly falls to 8.33%, or £0.67 per metre. However, the proportion of total output value accounted for by materials rises to 90/120 = 75%, or £0.60 per metre. The rate of profit falls to 10/110 = 9.09%.

This is the basis of Marx's Law of the Tendency for the Rate of Profit to Fall. In Chapter 14 of Capital III, Marx sets out a number of countervailing forces that operate against this law. If the rise in social productivity reduces the value of materials, for example, this will reduce the value of the circulating constant capital, and thereby raise the rate of profit. For example, suppose the value of yarn fell from £0.60 per kilo to £0.50 per kilo. We would then have,

Machines £10,000

Materials £75,000

Wages £10,000

Surplus Value £10,000 

The rate of profit would then be 10/95 = 10.53%. But, the value of yarn would have to fall by more than 50%, before the result was that the rate of profit rose.

Similarly, the rise in social productivity reduces the value of labour-power, and thereby raises the rate of surplus value, which acts to raise the rate of profit. Suppose, wages fell to £8,000, so that profit rises to £12,000. Using this last example, the rate of profit would then be 12/93 = 12.90%.