This chapter analyses Marx’s concept of the composition of capital. Although this concept is essential for understanding the relationship between values and prices, technical change, and other structures and processes, it has been generally explained cursorily and understood only superficially and incorrectly in most of the literature.1
The argument is developed in four sections. The first briefly reviews some of the best known interpretations of the composition of capital in order to illustrate the diversity of the literature on this topic. The second follows Marx’s analysis of the composition of capital in the absence of technical change. Each concept used by Marx is defined and its introduction justified. The third section discusses how the technical (TCC), organic (OCC) and value composition of capital (VCC) are affected by technical progress. It will be shown that one of Marx’s aims in distinguishing the OCC from the VCC is for a focused analysis of a particular case, where the accumulation of capital occurs with technological innovation. The fourth section summarises the main findings of this chapter. The contrast between the static and dynamic cases is essential, not only to the orderly introduction of the concepts, but also to the appreciation of their contradictions, limits and shifts. Moreover, this arrangement is useful in its direct connection with the levels of analysis of the composition of capital.
Widely different understandings of the composition of capital found in the literature may, at least partly, result from Marx’s use of three forms of the concept, the TCC, OCC and VCC. While the content of each term is evident at times, there are moments when Marx seems to use them contradictorily; consequently, large chunks of his inquiry may look arbitrary and puzzling. A brief review of differing views of the composition of capital may give a better idea of the difficulties involved in this study.
Paul Sweezy argues that the composition of capital is the relation of constant (c) to variable capital (v) in the total capital used in production. For him, although ‘[s]everal ratios would serve to indicate this relation … the one which seems most convenient is the ratio of constant capital to total capital.’2 Sweezy defines the OCC as c/(c+v). This formulation has its roots in Bortkiewicz’s work, and it is also adopted by Seton and Desai.3 In his discussion of the transformation problem Sweezy follows Bortkiewicz’s treatment and, as may be gathered from the discussion below and in chapter 7, attributes the different sectoral rates of profit to the distinct value rather than organic compositions of the invested capital, which is contrary to Marx’s argument.
Michio Morishima is closer to the mark in his understanding of the TCC and the VCC, but misinterprets the OCC by defining it as the name Marx would have given to the VCC, in case the TCC underwent changes such that all relative values were left unaltered (in other words, for him OCC is the name of the VCC when the changes in the TCC are precisely reflected by changes in the VCC—as if productivity increase is identical across all sectors).4 Morishima believes that Marx only defined the OCC to simplify his treatment of technical changes, but it will be shown below that this is insufficient.
Nobuo Okishio5 works with the value composition of capital under the name of the organic composition in his treatment of the transformation, and he is by no means the only one to do so. Most of the current literature argues that the OCC can be defined unproblematically as c/v, as if the VCC did not exist, and they transform values into prices on the basis of this presumption.6 However, for Marx, matters were slightly more complicated than that. In his analysis of the law of the tendency of the rate of profit to fall, Roemer also calls OCC what should really be termed VCC, and his discussion of the falling profit rate bears the mark of this fundamental misconception.7
In his classic paper proposing an iterative solution to the transformation problem, Shaikh calls OCC the ratio (c+v)/v.8 In contrast, Sherman defines the OCC as v/(c+v) while M. Smith and Wright, following Mage, call OCC the ratio c/(v+s). Foley, in his outstanding textbook, defines the ‘composition of capital’ as v/(c+v), and the ‘OCC’ as c/v.9 Finally, Groll and Orzech in their detailed discussion of the composition of capital (one of whose merits is the careful distinction of the TCC, OCC and VCC from each other) argue that the OCC is a long-run value-concept while the VCC is measured in market prices and refers to the short-run, something with which Marx would probably disagree.10
These problems are merely a sample of the difficulties one encounters in literature on the composition of capital. In order to understand Marx’s use of these concepts, this chapter reviews their development. In what follows it is shown that, while in the Grundrisse Marx does not yet employ the concepts which he would later call the composition of capital, in the Theories of Surplus Value he introduces the physical (technical) composition of capital and the organic composition of capital and, finally, in Capital he uses the technical composition of capital, the organic composition of capital and the value composition of capital in their most developed form. The progressive introduction of these terms reflects the increasing refinement of Marx’s own perception of the matters at stake, and allows him to clarify his own arguments. It will be shown below that, although the form of Marx’s arguments changes, the problems with which he deals and the results he reaches are essentially unaltered through the years.
The productivity of labour is determined by the mass of means of production that can be processed into final commodities in a given labour time or, alternatively, by the output per hour.11 This notion is captured by the technical composition of capital (TCC, called earlier the physical composition of capital). The TCC is the physical ratio between the mass of material inputs (the products of past labour) and the living labour necessary to transform them into the output:
A certain quantity of labour-power, represented by a certain number of workers, is required to produce a certain volume of products in a day, for example, and this involves putting a certain definite mass of means of production in motion and consuming them productively-machines, raw materials etc … This proportion constitutes the technical composition of capital, and is the actual basis of its organic composition.12
The TCC cannot be measured directly or compared across branches because it is the ratio between a heterogeneous bundle of use values (the material inputs) and a quantity of sectorally-specific average (normalised and synchronised) labour, rather than abstract labour (see chapter 5). For example, it is impossible to contrast directly the TCC in the construction and electronic industries, where the use value of the inputs processed per hour of labour, and the value-productivity of labour, can be very different. However, the TCC can be assessed in value terms because in capitalism all produced inputs tend to become commodities. The value-assessment of the TCC defines the organic composition of capital (OCC), or the value of the means of production which absorb one hour of living labour in a given firm, industry or economy:
The organic composition can be taken to mean the following: Different ratios in which it is necessary to expend constant capital in the different spheres of production in order to absorb the same amount of labour.13
For Marx, the OCC is the value-reflex of the TCC, or a ‘technological composition’ determined in production and that synthesises, in value terms, the technical relations in production. The OCC relates the total value of the constant capital (including fixed and circulating capital) to the total labour time required to transform the inputs (whether paid or unpaid). Marx refers to the OCC as follows:
The ratio between the different elements of productive capital … [can be] determined … [b]y the organic composition of productive capital. By this we mean the technological composition. With a given productivity of labour, which can be taken as constant so long as no change occurs, the amount of raw material and means of labour, that is, the amount of constant capital in terms of its material elements—which corresponds to a definite quantity of living labour (paid or unpaid), that is, to the material elements of variable capital, is determined in every sphere of production.14
There is, however, a severe difficulty with the OCC. As the value of a bundle of means of production is the product of the values of its components by the quantities used up, it seems impossible to tell whether differences or changes in the OCC are due to differences or changes in the TCC (and, consequently, to differences or changes in the productivity of labour in this industry) or from differences or changes in the value of the means of production used up (that reflect the circumstances in other industries). However, for Marx there was no ambiguity. As the OCC is an immediate value-reflex of the TCC, it does not change if the TCC is kept constant, even if the value of the elements of capital changes. Having made this highly abstract claim, Marx says:
if one assumes that the organic composition of capitals is given and likewise the differences which arise from the differences in their organic composition, then the value ratio can change although the technological composition remains the same … If there is any change in [e.g.] the value of variable capital independent[ly] of the organic composition, it can only occur because of a fall or a rise in the price of means of subsistence that are not produced in the sphere of production under consideration but enter into it as commodities from outside … The organic changes and those brought about by changes of value can have a similar effect on the rate of profit in certain circumstances. They differ however in the following way. If the latter are not due simply to fluctuations of market prices and are therefore not temporary, they are invariably caused by an organic change in the spheres that provide the elements of constant or of variable capital.15
Marx is clearly aware that, for a given production process, changes in the value-ratio between the (fixed and circulating) constant capital and the (paid and unpaid) quantity of labour technically required can stem from either variations in the value of the inputs or from technological (‘organic’) changes in production. Based on this definition of the OCC, and aware that technical and value changes should not be conflated, Marx planned to discuss in Chapter 2 of Part 3 of Capital:
Marx eventually realised that an adequate treatment of these problems would require a more refined distinction between the effects of the application of different technologies and the consequences of the use of inputs of distinct values. For this reason he introduces, in Capital, the concept of value composition of capital (VCC). The VCC is a concept of exchange. This is the ratio between the value of the circulating part of the constant capital (including the depreciation of fixed capital) and the variable capital required to produce a unit of the commodity.17
Let us follow Marx’s discussion of the same problem both before and after the introduction of the VCC. This will show the place of the VCC in his analysis, and its relation to the TCC and the OCC. Marx wants to argue that if the technical and organic compositions of two capitals are equal, but the value of the means of production used up is different, the value-assessment of their TCCs from the point of view of circulation may mislead the analyst into believing that their TCCs are distinct. In the Theories of Surplus Value he says:
In the case of capitals of equal size … the organic composition may be the same in different spheres of production, but the value ratio of the primary component parts of constant and variable capital may be different according to the different values of the amount of instruments and raw materials used. For example, copper instead of iron, iron instead of lead, wool instead of cotton, etc.18
The VCC allowed Marx to become more rigorous and elegant. In Capital, he says:
it is possible for the proportion [the TCC] to be the same in different branches of industry only in so far as variable capital serves simply as an index of labour-power, and constant capital as an index of the volume of means of production that labour-power sets in motion. Certain operations in copper or iron, for example, may involve the same proportion between labour-power and means of production. But because copper is dearer than iron, the value relationship between variable and constant capital will be different in each case, and so therefore will the value composition of the two capitals taken as a whole.19
These examples explain the impact of differences in the value of the means of production consumed per hour of labour in distinct sectors with equal TCCs and OCCs. For example, if copper and iron implements (or wool and cotton clothes, or silver and gold jewellery) are manufactured with identical technologies and, therefore, by capitals with the same technical and organic compositions, Marx says that their value compositions are different because of the distinct value of the material inputs.20 In the first quote, he measures the TCCs only through the OCCs. As the OCC reflects the TCC from the point of view of production, it disregards the distinct value of the inputs used up. Marx can only point out that capitals may have equal TCCs and OCC, even though they employ means of production with distinct values. In the second example, Marx argues differently, directly claiming that if two capitals in distinct sectors have the same technical (and, therefore, organic) composition, but use means of production with different value, the equality of their TCCs and OCCs would appear distorted by their distinct VCCs.
The opposite case was also the subject of Marx’s attention. If two sectors had equal VCCs, could they have different OCCs (and, therefore, distinct TCCs)? Marx’s answer is in the affirmative:
A capital of lower organic composition … considered simply in terms of its value composition, could evidently rise to the same level as a capital of higher organic composition, simply by an increase in the value of its constant parts … Capitals of the same organic composition can thus have a differing value composition, and capitals of the same percentage {value} composition can stand at varying levels of organic composition, displaying various different levels of development of the social productivity of labour.21
Therefore, if in two distinct production processes a given quantity of homogeneous labour power transforms different masses of means of production into the final product, the capitals will have different TCCs and OCCs. However, if the value of these inputs is such that the ratio between the constant and the variable capitals used up is equal, then their VCCs will be equal.22
These examples show that differences in the value of the constant and variable capital consumed in distinct industries are captured by the VCC but not the OCC; in contrast, differences in the technologies of production affect the OCC but they may not be accurately reflected by the VCC. The concept of OCC is important because it allows the study of technical differences (or changes, see section 6.3) in production, regardless of the corresponding value differences (or changes), while the VCC cannot distinguish between them. One final example illustrates the scope and limitations of the concept of OCC, and the role of the VCC:
let us assume that the raw material is dearer and labour (of greater skill) is dearer, in the same proportion. In this case {capitalist} A employs 5 workers, where {capitalist} B employs 25, and they cost him £100—as much as the 25 workers, because their labour is dearer (their surplus labour is therefore also worth more). These 5 workers work up 100 lbs. of raw material, y, worth {£}500 and B’s workers work up 1,000 lbs. of raw material, x, worth {£}500 … The value ratio here -£100 v to {£}500 c is the same in both cases, but the organic composition is different.23
This example is clear enough. Although capitalists A and B spend equal amounts of money on means of production and labour power—which implies that their capitals have equal value compositions—their organic compositions are different because of the distinct production technologies.
In sum, although the OCC and the VCC are value-assessments of the TCC, they are distinct concepts because of the different evaluation of the means of production and labour power. An OCC-comparison of the technologies of production adopted in two industries is independent of differences in the values of the components of capital, because the OCC is defined in production. In contrast, distinctions (or variations, see section 6.3) in the values of constant and variable capital are detected by the VCC, a concept of exchange.24 Only in this case is it possible to apprehend Marx’s definition in full:
The composition of capital is to be understood in a two-fold sense. As value, it is determined by the proportion in which it is divided into constant capital … and variable capital … As material, as it functions in the process of production, all capital is divided into means of production and living labour-power. This latter composition is determined by the relation between the mass of the means of production employed on the one hand, and the mass of labour necessary for their employment on the other. I call the former the value-composition, the latter the technical composition of capital. There is a close correlation between the two. To express this, I call the value-composition of capital, in so far as it is determined by its technical composition and mirrors the changes in the latter, the organic composition of capital.25
One of the essential features of capitalism is the tendency towards the development of the production technologies (see section 5.2). Technical change is usually introduced in individual firms, raising their TCCs and, consequently, their OCCs and VCCs.26 Because of their higher productivity, the innovating firms enjoy higher profit rates. Competition between firms in the same branch tends to generalise these technical advances, which reduces the commodity values and eliminates the advantage of the innovating firms. More generally, the technical and the organic compositions of capital in general tends to rise in every turnover and, all else constant, commodity values tend to fall.27
Since technical change potentially modifies the values of all commodities, whether directly or indirectly, the determination of the composition of capital in a dynamic environment is contingent upon the way changes in production affect commodity circulation. This is best analysed at the level of capital in general, where the values that exist at the beginning of the circuit (‘earlier values’), at which the inputs are purchased, are higher than those at which the output is sold (‘later values’).28 This conceptual distinction is essential for the analysis of accumulation:
since the circulation process of capital is not completed in one day but extends over a fairly long period until the capital returns to its original form … great upheavals and changes take place in the market in the course of this period … [and] in the productivity of labour and therefore also in the real value of commodities, [and] it is quite clear, that between the starting-point, the prerequisite capital, and the time of its return at the end of one of these periods, great catastrophes must occur and elements of crises must have gathered and develop … The comparison of value in one period with the value of the same commodity in a later period is no scholastic illusion … but rather forms the fundamental principle of the circulation process of capital.29
Now, which values should be used in the calculation of the OCC and the VCC, the older and higher or the newer and lower? For Marx, the answer is unambiguous. The OCC reflects the TCC at the initial (higher) values of the component parts of capital, before the new technologies affect the value of the output. In contrast, the VCC reflects the TCC at the final (lower and synchronised) values of the elements of constant and variable capital, determined by the modified conditions of production and newly established in exchange. Therefore, changes in the social VCC capture the rise in the social TCC as well as the ensuing fall in commodity values, including those that have been used as inputs. Consequently, the VCC tends to increase more slowly than the social TCC and OCC:
This change in the technical composition of capital … is reflected in its value-composition by the increase of the constant constituent of capital at the expense of its variable constituent … However … this change in the composition of the value of the capital, provides only an approximate indication of the change in the composition of its material constituents … The reason is simple: with the increasing productivity of labour, the mass of the means of production consumed by labour increases, but their value in comparison with their mass diminishes. Their value therefore rises absolutely, but not in proportion to the increase in their mass.30
In contrast, the social OCC is measured at the ‘earlier’ values, and rises in tandem with the social TCC. In advanced capitalism, when technical progress is the main lever of accumulation, we may well find that the TCC and the OCC grow even faster than social capital itself:
the development of the productivity of labour … and the change in the organic composition of capital which results from it, are things which do not merely keep pace with the progress of accumulation, or the growth of social wealth. They develop at a much quicker rate, because simple accumulation, or the absolute expansion of the total social capital, is accompanied by the centralization of its individual elements, and because the change in the technical composition of the additional capital goes hand in hand with a similar change in the technical composition of the original capital.31
The OCC is distinguished from the VCC only through the comparison between contrasting situations. If one compares two capitals at the same moment of time, one would contrast the value of the constant capital productively consumed per hour of labour (which defines the VCC) with the mass of means of production processed in the same time (that determines the TCC and the OCC). This case is important theoretically, and it was through the static comparison of capitals with distinct organic compositions that Marx developed, in Part 2 of Capital 3, his transformation of values into prices of production (see chapter 7).
In a dynamic environment, both the OCC and VCC of a capital undergoing technical change can be calculated. It was shown above that they diverge because the OCC is an ex ante evaluation of the (fixed and circulating) constant capital technically required per hour of (paid and unpaid) labour, while the VCC is the ex post ratio between the new value of the (circulating) constant and the variable capital spent in the last phase of production. Thus, the OCC is measured at the time of production, while the VCC is determined in circulation and calculated when labours are normalised, synchronised and homogenised, new values are determined and commodities are about to enter the sphere of exchange. It was in this context that Marx presented his law of the tendency of the rate of profit to fall, in Part 3 of Capital 3.32
Marx’s use of the TCC, OCC and VCC may at times look ambiguous, since both the OCC and the VCC assess the TCC in value terms. However, these concepts have very distinct meaning and significance, and the terminological changes that Marx gradually adopts almost certainly reflect his growing awareness of the importance of the composition of capital for the analysis of accumulation, the transformation of values into prices of production, the tendency of the rate of profit to fall, different types of rent and so on. However, and probably more importantly, they help to illuminate the impact of accumulation upon the reproduction of the social capital. Continuous technical change raises the TCC, the OCC and gross input values. However, output values, future input prices, and the VCC tend to fall. How the actual process of adjustment happens—especially for large blocs of fixed capital—is crucial to the process of accumulation, because the sudden devaluation of large masses of capital can lead to financial upheaval and crises.