The Compositions of Capital
This chapter explains Marx’s concepts of technical, organic and value compositions of capital, as a prelude to the study of the law of the tendency of the rate of profit to fall (LTRPF) and the transformation problem, in Chapters 9 and 10, respectively. This prelude is important for two reasons. First, although the compositions of capital are essential for understanding the relationship between values and prices, technical change, economic crises, and other structures and processes in the capitalist economy, they have been generally explained cursorily and understood only superficially (and often incorrectly) in the literature. Second, the LTRPF is traditionally seen as having only a passing relationship with the transformation problem. This is wrong, for they are closely related to one another through the compositions of capital.
The Technical Composition of Capital
In Volume 1 of Capital, Marx examines the capitalist method of production, i.e. the systematic way in which capitalism transforms the labour process through the factory system and appropriates the other conditions of production, for example, the natural resources (see Chapters 6 and 15). In this volume, Marx also establishes the tendency for the productivity of labour to rise systematically under capitalism, which is captured by the concept of the technical composition of capital (TCC).
The TCC is the physical ratio between the material inputs used up and the living labour socially necessary to transform these inputs into the output. Although Marx shows that the TCC tends to rise over time (this being the expression of the rising productivity of labour under capitalism), attempts to measure the TCC and its changes, or to contrast the technical composition of capitals in different sectors (agriculture and electricity generation, for example) face a severe problem: the TCC cannot be measured directly, because it is the ratio between a heterogeneous bundle of use values (the material inputs) and the average quantities of labour spent in each firm or sector. In other words, the TCC can be measured by a single index only in so far as a mass of heterogeneous raw materials and living labour are reduced to a common denominator.
For mainstream theory, the measurement of the TCC is what is termed an ‘index number problem’. In contrast, in Marx’s theory, commodity values form the basis on which the TCC can be measured. This is not simply the choice of one index rather than another. It reflects Marx’s proposition that value is a legitimate category of analysis for a capitalist society. In this society, as was shown in Chapter 2, different labours are regularly and necessarily brought into equivalence with each other in production and in exchange, establishing the dominance of value relations within capitalism. Value measurements of the TCC are legitimate (rather than simply ‘convenient’, with the drawbacks associated with any index number) because they express the underlying realities of production, as well as the systematic changes in the conditions of production under capitalism, in terms of the social and value relations in which they are embodied.
The Organic and Value Compositions
In addition to the technical composition, Marx distinguishes between the organic and value compositions of capital (OCC and VCC). The OCC and VCC have rarely been distinguished in the subsequent literature, and they have often been used interchangeably. For both, the algebraic definition has generally been denoted by c ⁄ v (constant capital divided by variable capital). However, this raises the question: what values are being used to reduce the heterogeneous bundle of raw materials, in the case of c, and of living labour, in the case of v, to single-value dimensions? This is a pertinent problem in this context, since Marx’s use of the composition of capital is concerned with accumulation and, therefore, with the systematic reduction in commodity values through technical change (see Chapter 3).
Before dealing with this problem in the dynamic context of accumulation, it is useful for expositional purposes to distinguish the VCC and the OCC in a static context. Consider, for example, the production of jewellery. Suppose that exactly the same labour process and the same machines and technology are used to produce both silver and gold rings. In this case, both production processes will have the same TCC, since this measures the quantity of raw materials relative to living labour. But the production of gold rings will involve a higher VCC since it uses raw materials of a higher value (gold as opposed to silver). To reflect the lack of difference in the production processes from the technical point of view, Marx defines the OCC as equal for the two production processes. It follows that the OCC measures the TCC in value terms, but leaving aside the differences created by the greater or lesser value of the raw materials employed.
This creates some difficulty in measuring the OCC, since the appropriate values at which to define the ratio of c to v are not specified. Should we, for example, use the value of gold, the value of silver or something in between? This measurement problem is created by the attempt to make the distinction in a static context, in which the TCC and the VCC alone would suffice. It is only when production processes are changing that the distinction between the OCC and the VCC can help to illuminate the equivalence or otherwise between (changes in the) production processes from the organic point of view.
Consider now a dynamic example, involving the steel industry. Suppose that, because of technical improvements in production, the value of steel falls, with all else constant. When a widely used input like steel becomes cheaper, the VCC in every sector of the economy changes according to the relative content of steel in its constant capital and in the value of labour power. In a simple case, with a homogeneous labour force, the VCCs will vary according to the relative use of steel. In spite of these VCC changes, the OCCs in the non-steel sectors will remain unchanged, because – in the first instance – there has been no change in their TCCs. In contrast, the OCC of the steel industry has increased (together with its TCC) because of the original technological improvement. This example shows that the OCC measures changes in production in value terms, and that the OCC can measure something distinct from the VCC (and, therefore, becomes relevant in practice) only when the TCC changes.
The two examples given above serve to explain the difference between the VCC and the OCC. The matter is different once we begin to consider continually changing conditions of production across the economy. Marx argues that, at its developed stage, capitalism involves accumulation through the production of relative surplus value, with machinery systematically displacing living labour. This results in a tendency towards a rising TCC across the economy. In this case, the TCC can be measured in value terms in two different ways.
On the one hand, from the point of view of changes in production alone, the TCC is measured by the OCC. Raw materials and labour power enter the production process with given values, leading to a definite ratio of constant to variable capital according to the extent to which labour is coerced to transform inputs into outputs. If we were to put it chronologically, the OCC measures the TCC at the ‘old’ values prevailing prior to the technical changes and the renewal of the production process. On the other hand, whenever there is technical progress somewhere in the economy there is a change (reduction) in the values of commodities. The VCC is measured after this stage, taking into account the TCC from the point of view of the change both in the OCC and in the values of commodities as they are realised in exchange. In chronological terms, the VCC is measured at the ‘new’ rather than the ‘old’ values. In sum, the VCC captures the contradictory implications of the rising TCC as well as the falling commodity values due to technological progress. Therefore, the VCC tends to rise more slowly than the TCC and the OCC.
The description of the difference between the VCC and the OCC in terms of new and old values is conceptual rather than chronological: at any moment in time some capitals will be entering the production process as others will be leaving it, while technical change is ubiquitous. What the distinction does is to draw upon, and build in a more complex context, the separation between the spheres of production and exchange (see Chapter 4). In production, the two classes of capitalists and workers confront each other over the process of production and, as accumulation proceeds, there is a tendency for the TCC to rise. In exchange, capitalists confront each other as competitors in the process of buying and selling and, as accumulation proceeds, there is a tendency for values to be reduced and for the VCC to decline. It is shown in the next chapter that the interaction of these processes is the primary concern of Marx’s LTRPF. In Chapter 10, the relationship between values and prices in Marx is explained through the role of the OCC in his analysis.
As mentioned, the literature has been careless over its treatment of the compositions of capital. Generally, in the context of the LTRPF, most attention has been focused, at least in terminology, upon the OCC, with scant regard for the TCC and VCC. Ironically, despite the terminological predominance of the OCC, the VCC has been what has been meant in practice. This reflects disregard for Marx’s own distinctions and misinterpretation of his work and intent, collapsing how the organic and value compositions are distinctly formed (in production and exchange, respectively) into a single process.
Not surprisingly, the literature specifically on the compositions of capital is scant. Marx explains his concepts in Marx (1969, ch.12, 1972, ch.23, 1981a, ch.8). The interpretation in this chapter draws upon Ben Fine (1990a) and Ben Fine and Laurence Harris (1979, ch.4). This interpretation is reviewed and developed in the light of the existing literature by Alfredo Saad-Filho (1993, 2001, 2002, ch.6). For a spirited critique of our position, see Moseley (2015, ch.11).