Once wages and the working day are given, a variable capital, which we can take as 100, represents a definite number of workers set in motion; it is an index of this number. Say that £100 provides the wages of 100 workers for one week. If these 100 workers perform as much surplus labour as necessary labour, they work as much time for the capitalist each day, for the production of surplus-value, as they do for themselves, for the reproduction of their wages, and their total value product would then be £200, the surplus-value they produce amounting to £100. The rate of surplus-value s/ν would be 100 per cent. Yet, as we have seen, this rate of surplus-value will be expressed in very different rates of profit, according to the differing scale of the constant capital c and hence the total capital C, since the rate of profit is s/C. If the rate of surplus-value is 100 per cent, we have:
if c = 50 and ν = 100, then p′ = 100/150 = 66 2/3 per cent;
if c = 100 and ν = 100, then p′ = 100/200 = 50 per cent;
if c = 200 and ν = 100, then p′ = 100/300 = 33 1/3 per cent;
if c = 300 and ν = 100, then p′ = 100/400 = 25 per cent;
if c = 400 and ν = 100, then p′ = 100/500 = 20 per cent;
The same rate of surplus-value, therefore, and an unchanged level of exploitation of labour, is expressed in a falling rate of profit, as the value of the constant capital and hence the total capital grows with the constant capital’s material volume.
If we further assume now that this gradual change in the composition of capital does not just characterize certain individual spheres of production, but occurs in more or less all spheres, or at least the decisive ones, and that it therefore involves changes in the average organic composition of the total capital belonging to a given society, then this gradual growth in the constant capital, in relation to the variable, must necessarily result in a gradual fall in the general rate of profit, given that the rate of surplus-value, or the level of exploitation of labour by capital, remains the same. Moreover, it has been shown to be a law of the capitalist mode of production that its development does in fact involve a relative decline in the relation of variable capital to constant, and hence also to the total capital set in motion.* This simply means that the same number of workers or the same quantity of labour-power that is made available by a variable capital of a given value, as a result of the specific methods of production that develop within capitalist production, sets in motion, works up, and productively consumes, within the same period, an ever-growing mass of means of labour, machinery and fixed capital of all kinds, and raw and ancillary materials – in other words, the same number of workers operate with a constant capital of ever-growing scale. This progressive decline in the variable capital in relation to the constant capital, and hence in relation to the total capital as well, is identical with the progressively rising organic composition, on average, of the social capital as a whole. It is just another expression for the progressive development of the social productivity of labour, which is shown by the way that the growing use of machinery and fixed capital generally enables more raw the ancillary materials to be transformed into products in the same time by the same number of workers, i.e. with less labour. There corresponds to this growing volume of constant capital – although this expresses only at a certain remove the growth in the actual mass of use-values which the constant capital consists of in material terms – a continual cheapening of the product. Each individual product, taken by itself, contains a smaller sum of labour than at a lower stage of development of production, where the capital laid out on labour stands in a far higher ratio to that laid out on means of production. The hypothetical series we constructed at the opening of this chapter therefore expresses the actual tendency of capitalist production. With the progressive decline in the variable capital in relation to the constant capital, this tendency leads to a rising organic composition of the total capital, and the direct result of this is that the rate of surplus-value, with the level of exploitation of labour remaining the same or even rising, is expressed in a steadily falling general rate of profit. (We shall show later on why this fall does not present itself in such an absolute form, but rather more in the tendency to a progressive fall.) * The progressive tendency for the general rate of profit to fall is thus simply the expression, peculiar to the capitalist mode of production, of the progressive development of the social productivity of labour. This does not mean that the rate of profit may not fall temporarily for other reasons as well, but it does prove that it is a self-evident necessity, deriving from the nature of the capitalist mode of production itself, that as it advances the general average rate of surplus-value must be expressed in a falling general rate of profit. Since the mass of living labour applied continuously declines in relation to the mass of objectified labour that it sets in motion, i.e. the productively consumed means of production, the part of this living labour that is unpaid and objectified in surplus-value must also stand in an ever-decreasing ratio to the value of the total capital applied. But this ratio between the mass of surplus-value and the total capital applied in fact constitutes the rate of profit, which must therefore steadily fall.
Simple as the law appears from the above arguments, not one of the previous writers on economics succeeded in discovering it, as we shall see later on.† These economists perceived the phenomenon, but tortured themselves with their contradictory attempts to explain it. And given the great importance that this law has for capitalist production, one might well say that it forms the mystery around whose solution the whole of political economy since Adam Smith revolves and that the difference between the various schools since Adam Smith consists in the different attempts made to solve it. If we consider, on the other hand, how previous political economy has fumbled around with the distinction between constant and variable capital, but has never managed to formulate this in any definite way; how it has never presented surplus-value as something separate from profit, nor profit in general, in its pure form, as distinct from the various constituents of profit which have attained an autonomous position towards each other (such as industrial profit, commercial profit, interest, ground-rent); how it has essentially never analysed the differences in the organic composition of capital, and hence has not analysed the formation of the general rate of profit either – then it ceases to be a puzzle that political economy has never found this puzzle’s solution.
We are deliberately putting forward this law before depicting the decomposition of profit into various categories which have become mutually autonomous. The independence of this presentation from the division of profit into various portions, which accrue to different categories of persons, shows from the start how the law in its generality is independent of that division and of the mutual relationships of the categories of profit deriving from it. Profit, as we speak of it here, is simply another name for surplus-value itself, only now depicted in relation to the total capital, instead of to the variable capital from which it derives. The fall in the rate of profit thus expresses the falling ratio between surplus-value itself and the total capital advanced; it is therefore independent of any distribution of this surplus-value we may care to make among the various categories.
We have seen that at one stage of capitalist development, when the composition of capital c:v is 50:100 for example, a rate of surplus-value of 100 per cent is expressed in a rate of profit of 66 2/3 per cent, while at a higher stage of development, where c:v is 400:100 say, the same rate of surplus-value is expressed in a rate of profit of only 20 per cent. What applies to different successive stages of development in one country applies also to different countries that find themselves in differing stages of development at the same point in time. In the undeveloped country, where the composition of capital is on the average as first mentioned, the general rate of profit would be 66 2/3 per cent, while in the country at a much higher level of development it would be 20 per cent.
The distinction between the two national rates of profit could disappear, or even be reversed, if in the less developed country labour was less productive, i.e. a greater quantity of labour was expressed in a smaller quantity of the same commodity and a greater exchange-value in less use-value, so that the worker would have to spend a greater portion of his time in reproducing his own means of subsistence or their value, leaving a smaller portion for producing surplus-value, thus providing less surplus labour, so that the rate of surplus-value would be lower. If the worker in the less advanced country worked two-thirds of the day for himself, for instance, and one-third for the capitalist, then, on the assumptions of the above example, the same labour-power would be paid 133 1/3 and would provide a surplus of only 66 2/3. To the variable capital of 133 1/3 there would correspond a constant capital of 50. The rate of surplus-value would now come to 133 1/3:66 2/3 = 50 per cent, and the rate of profit to 183 2/3:66 2/3 or approximately 36 1/2 per cent.
Since we have not investigated up till now the various components into which profit is divided, so that these do not exist for us as yet, the following point is anticipated here simply for the sake of avoiding any misunderstandings. When comparison is made between countries at different levels of development, and particularly between countries of developed capitalist production and those where labour is not yet formally subsumed * by capital although in reality the worker is already exploited by the capitalist (in India, for example, where the ryot operates as an independent peasant farmer, and his production is not yet subsumed under capital, although the money-lender may well extort from him in the form of interest not only his entire surplus labour, but even – to put it in capitalist terms – a part of his wages), it would be quite wrong to seek to measure the national rate of profit by the level of the national rate of interest. Interest here includes both the entire profit and more than the profit, whereas in countries where capitalist production is developed it simply expresses an aliquot part of the surplus-value or profit produced. Moreover, in the former case the rate of interest is predominantly determined by factors such as the level of advances by money-lenders to the big landowners who are the recipients of ground-rent, which have nothing at all to do with profit but rather express the extent to which the money-lender himself appropriates this ground-rent.
In countries where capitalist production stands at different levels of development and between which the organic composition of capital consequently varies, the rate of surplus-value (as one factor that determines the rate of profit) may be higher in a country where the normal working day is shorter than in one where it is longer. Firstly, if the English working day of 10 hours is equal to an Austrian working day of 14 hours, on account of its higher intensity, then, given the same division of the working day, 5 hours’ surplus labour in the one country may represent a higher value on the world market than 7 hours’ in the other. Secondly, a greater part of the working day in England may form surplus labour than in Austria.
The law of the falling rate of profit, as expressing the same or even a rising rate of surplus-value, means in other words: taking any particular quantity of average social capital, e.g. a capital of 100, an ever greater portion of this is represented by means of labour and an ever lesser portion by living labour. Since the total mass of living labour added to the means of production falls in relation to the value of these means of production, so too does the unpaid labour, and the portion of value in which it is represented, in relation to the value of the total capital advanced. Alternatively, an ever smaller aliquot part of the total capital laid out is converted into living labour, and hence the total capital absorbs ever less surplus labour in relation to its size, even though the ratio between the unpaid and paid parts of the labour applied may at the same time be growing. The relative decline in the variable capital and increase in the constant capital, even while both portions grow in absolute terms, is, as we have said, simply another expression for the increased productivity of labour.
Say that a capital of 100 consists of 80c + 20ν, and the latter represents 20 workers. Let the rate of surplus-value be 100 per cent, so that the workers work half the day for themselves and half the day for the capitalist. In a less developed country, the capital might be 20c + 80ν, with the latter portion representing 80 workers. But these workers might need two-thirds of the working day for themselves and work only one-third of the day for the capitalist. Taking everything else as equal, the workers in the first case produce a value of 40, in the second case a value of 120. The first capital produces 80c + 20ν + 20s = 120, rate of profit 20 per cent; the second capital produces 20c + 80ν + 40s = 140, rate of profit 40 per cent. This rate is thus as large again as in the first case, even though the rate of surplus-value here was 100 per cent, twice that in the second case, where it is only 50 per cent. The reason for this is that a capital of the same size appropriates in the first case the surplus labour of only 20 workers, as against that of 80 workers in the second case.
The law of a progressive fall in the rate of profit, or the relative decline in the surplus labour appropriated in comparison with the mass of objectified labour that the living labour sets in motion, in no way prevents the absolute mass of labour set in motion and exploited by the social capital from growing, and with it the absolute mass of surplus labour it appropriates; any more than it prevents the capitals under the control of individual capitalists from controlling a growing mass of labour and hence of surplus labour, this latter even if there is no increase in the number of workers under their command.
If we take a given working population, of 2 million for example, and further assume that the length and intensity of the average working day is given, as well as wages, and hence also the relationship between necessary and surplus labour, then the total labour of these 2 million workers always produces the same magnitude of value, and the same thing is true of their surplus labour, as expressed in surplus-value. But as the mass of constant (fixed and circulating) capital set in motion by this labour grows, so there is a fall in the ratio between this magnitude and the value of the constant capital, which grows with its mass, even if not in the same proportion. This ratio falls, and with it the profit rate, even though capital still commands the same mass of living labour as before and absorbs the same mass of surplus labour. If the ratio changes, this is not because the mass of living labour falls but rather because the mass of already objectified labour that it sets in motion rises. The decline is relative, not absolute, and it has in fact nothing whatsoever to do with the absolute amount of the labour and surplus labour set in motion. The fall in the rate of profit does not arise from an absolute decline in the variable component of the total capital but simply from a relative decline, from its decrease in comparison with the constant component.
What holds when the amount of labour and surplus labour is at a constant level holds also when the number of workers is growing, and when, accordingly, under the given assumptions, the mass of labour under capital’s command is growing in general, and its unpaid portion, surplus labour, is growing in particular. If the working population rises from 2 to 3 millions and the amount of variable capital laid out on wages similarly becomes 3 million instead of 2, while the constant capital rises from 4 million to 15 million, then under the given assumptions (working day and rate of surplus-value constant) the mass of surplus labour and surplus-value still rises by a half, by 50 per cent, from 2 to 3 million. It is none the less the case, however, that despite this growth of 50 per cent in the absolute mass of surplus labour and hence surplus-value, the ratio of variable capital to constant would fall from 2:4 to 3:15, and the relationship between the surplus-value and the total capital would stand as follows (in millions):
I. 4c + 2ν + 2s; C = 6, p′ = 33 1/3 per cent
II. 15c + 3ν + 3s; C = 18, p′ = 16 2/3 per cent.
While the mass of surplus-value has risen by a half, the rate of profit has fallen to half its previous level. But profit is nothing more than the surplus-value reckoned in terms of the social capital, and the mass of profit, therefore, its absolute magnitude, is the same as the absolute magnitude of surplus-value, considering it on a social scale. The absolute magnitude of profit, its total mass, would thus have grown by 50 per cent, despite the enormous decline in the ratio between this mass of profit and the total capital advanced, i.e. despite the enormous decline in the general rate of profit. The number of workers employed by capital, i.e. the absolute mass of labour it sets in motion, and hence the absolute mass of surplus labour it absorbs, the mass of surplus-value it produces, and the absolute mass of profit it produces, can therefore grow, and progressively so, despite the progressive fall in the rate of profit. This not only can but must be the case – discounting transient fluctuations – on the basis of capitalist production.
The capitalist production process is essentially, and at the same time, a process of accumulation. We have shown how, with the progress of capitalist production, the mass of value that must simply be reproduced and maintained rises and grows with the rising productivity of labour, even if the labour-power applied remains constant. But as the social productivity of labour develops, so the mass of use-values produced grows still more, and the means of production form a portion of these. The additional labour, moreover, which has to be appropriated in order for this additional wealth to be transformed back into capital does not depend on the value of these means of production (including means of subsistence), since the worker is not concerned in the labour process with the value of the means of production but rather with their use-value. Accumulation itself, however, and the concentration of capital it involves, is simply a material means for increasing productivity. And this growth in the means of production entails a growth in the working population, the creation of a surplus population that corresponds to the surplus capital or even exceeds its overall requirements, thus leading to an over-population of workers. A momentary excess of surplus capital over the working population it commands has a double effect. On the one hand it will gradually increase the working population by raising wages, hence attenuating the destructive influences that decimate the offspring of the workers and making marriage easier, while on the other hand, by using methods that create relative surplus-value (introduction and improvement of machinery), it produces far more quickly an artificial and relative over-population, which in turn is the forcing house for a really rapid increase in the number of people – since, under capitalist production, misery produces population. It thus follows from the very nature of the capitalist accumulation process, and this process is simply one aspect of the capitalist process of production, that the increased mass of means of production designed to be turned into capital finds a correspondingly increased and even excessive working population available for exploitation. As the process of production and accumulation advances, therefore, the mass of surplus labour that can be and is appropriated must grow, and with it too the absolute mass of profit appropriated by the social capital. But the same laws of production and accumulation mean that the value of the constant capital increases along with its mass, and progressively more quickly than that of the variable portion of capital which is converted into living labour. The same laws, therefore, produce both a growing absolute mass of profit for the social capital, and a falling rate of profit.
We entirely leave aside here the fact that the same amount of value represents a progressively rising mass of use-values and satisfactions, with the progress of capitalist production and with the corresponding development of the productivity of social labour and multiplication of branches of production and hence products.
The course of the development of capitalist production and accumulation requires increasingly large-scale labour processes and hence increasingly large dimensions and increasingly large advances of capital for each individual establishment. The growing concentration of capitals (accompanied at the same time, though in lesser degree, by a growing number of capitalists) is therefore both one of its material conditions and one of the results that it itself produces. Hand in hand with this, in a relationship of reciprocity, goes progressive expropriation of the more or less immediate producers. In this way a situation comes about in which the individual capitalists have command of increasingly large armies of workers (no matter how much the variable capital may fall in relation to the constant capital), so that the mass of surplus-value and hence profit which they appropriate grows, along with and despite the fall in the rate of profit. The reasons that concentrate massive armies of workers under the command of individual capitalists are precisely the same reasons as also swell the amount of fixed capital employed, as well as the raw and ancillary materials, in a growing proportion as compared with the mass of living labour applied.
The only other thing that needs to be mentioned here is that with a given working population, if the rate of surplus-value grows, whether by prolongation or intensification of the working day or by reductions in the value of wages as a result of the developing productivity of labour, then the mass of surplus-value and hence the absolute mass of profit must also grow, despite the relative lessening of variable capital in relation to constant.
The same development of the productivity of social labour, the same laws that are evident in the relative fall in variable capital as a proportion of the total capital, and the accelerated accumulation that follows from this – while on the other hand this accumulation also reacts back to become the starting-point for a further development of productivity and a further relative decline in the variable capital – this same development is expressed, leaving aside temporary fluctuations, in the progressive increase in the total labour-power applied and in the progressive growth in the absolute mass of surplus-value and therefore in profit.
How, then, should we present this double-edged law of a decline in the profit rate coupled with a simultaneous increase in the absolute mass of profit, arising from the same reasons? A law based on the fact that, under the given conditions, the mass of surplus labour and hence surplus-value that is appropriated grows, and that, viewing the total capital as a whole, or the individual capital as simply a piece of the total capital, profit and surplus-value are identical quantities?
Let us take an aliquot part of the capital as a basis for reckoning the profit rate, say 100. This 100 represents the average composition of the total capital, say 80c + 20ν. We saw in Part Two of this volume how the average rate of profit in the various branches of production is determined not by any one particular composition of capital but rather by its average social composition. With the relative decline in the variable portion as compared with the constant, and hence also as a fraction of the total capital of 100, the profit rate falls if the level of exploitation of labour remains constant, or even if it rises; hence the relative magnitude of surplus-value falls, i.e. its relationship to the value of the total capital of 100 that is advanced. But it is not only this relative magnitude that falls. The amount of surplus-value or profit absorbed by the total capital of 100 also falls in absolute terms. At a rate of surplus-value of 100 per cent, a capital of 60c + 40ν produces a mass of surplus-value and hence profit of 40; a capital of 70c + 30ν produces a mass of profit of 30; with a capital of 80c + 20ν, the profit falls to 20. This fall bears on the mass of surplus-value and hence of profit, and it follows from the fact that because the total capital of 100 sets in motion less living labour in general, it also sets in motion less surplus labour and hence produces less surplus-value, with the level of exploitation remaining the same. Whatever aliquot part of the social capital we take as the standard for measuring surplus-value, i.e. whatever part of the capital of average social composition — and this is the case with any calculation of profit – a relative fall in surplus-value is always identical with an absolute fall. The rate of profit falls from 40 per cent to 30 per cent and 20 per cent in the above cases, because the mass of surplus-value and hence profit produced by the same capital itself falls from 40 to 30 and 20 in absolute terms. Since the size of the capital against which we measure the surplus-value is given as 100, a fall in the ratio of surplus-value to this magnitude, which itself remains constant, can only be another expression for the decline in the absolute magnitude of surplus-value and profit. This is in fact a tautology. But the reason for this decline, as has been shown, lies in the nature of development of the capitalist process of production.
On the other hand, however, the same reasons that produce an absolute decline in surplus-value and hence profit on a given capital, thus also in the rate of profit as reckoned as a percentage, bring about a growth in the absolute mass of the surplus-value and profit appropriated by the social capital (i.e. by the totality of capitalists). How are we to explain this, what is it dependent on, or what conditions are involved in this apparent contradiction?
If any aliquot part of the social capital, say 100, and hence any capital of 100 of average social composition, is a given magnitude, so that as far as it is concerned the decline in the rate of profit coincides with a decline in the absolute amount of profit, precisely because the capital on which this is measured is a constant magnitude, then the magnitude of the total social capital, on the other hand, just like that of the capital to be found in the hands of any individual capitalist, is a variable magnitude, and it must vary in inverse proportion to the decline in its variable portion if it is to fulfil the conditions we have presupposed.
When the percentage composition in the previous example was 60c + 40ν, the surplus-value or profit on it was 40 and the rate of profit therefore 40 per cent. Let us assume that at this level of composition the total capital was 1 million. The total surplus-value and total profit would then amount to 400,000. If the composition were later to become 80c + 20ν, the surplus-value or profit on each 100 would be 20, with the level of exploitation remaining the same. But the surplus-value or profit grows in its absolute mass, as we have shown, despite this decline in the rate of profit or the decline in the production of surplus-value by each capital of 100, and this growth might be from 400,000 to 440,000, say. This is possible only if the total capital that corresponds to this new composition has grown to 2,220,000. The mass of the total capital set in motion has risen to 220 per cent of its initial value, whereas the rate of profit has fallen by 50 per cent. If the capital had simply doubled, then at a rate of profit of 20 per cent it could only have produced the same amount of surplus-value and profit as the old capital of 1,000,000 did at 40 per cent. Had it grown by less than this, it would have produced less surplus-value or profit than the capital of 1,000,000 did previously, although at its earlier composition this would only have had to grow from 1,000,000 to 1,100,000 in order for its surplus-value to rise from 400,000 to 440,000.
Here we can see asserting itself the law we developed earlier,* according to which the relative decline in the variable capital, and thus the development of the social productivity of labour, means that an ever greater amount of total capital is required in order to set the same quantity of labour-power in motion and to absorb the same amount of surplus labour. In the same proportion as capitalist production develops, therefore, there also develops the possibility of a relative surplus working population, not because the productivity of social labour declines but rather because it increases, i.e. not from an absolute disproportion between labour and means of subsistence, or the means of producing these means of subsistence, but rather from a disproportion arising from the capitalist exploitation of labour, the disproportion between the progressive growth of capital and the relative decline in its need for a growing population.
A fall of 50 per cent in the rate of profit is a fall of a half. If the mass of profit is to remain the same, therefore, the capital must double. In general, if the mass of profit is to remain the same with a declining rate of profit, the multiplier that indicates the growth in the total capital must be the same as the divisor that indicates the fall in the profit rate. If the rate of profit falls from 40 per cent to 20 per cent, the total capital must rise in the ratio of 20:40 if the result is to remain the same. If the profit rate had fallen from 40 per cent to 8 per cent, the capital would have to grow in the ratio 8:40, i.e. by five times. A capital of 1,000,000 at 40 per cent produces 400,000, and a capital of 5,000,000 at 8 per cent also produces 400,000. This is necessary if the resultant is to remain the same. If it is to grow, on the other hand, the capital must grow in a higher ratio than that in which the profit rate falls. In other words, if the variable component of the total capital is not just to remain the same in absolute terms, but rather to grow, even though its percentage falls as a proportion of the total capital, then the total capital must grow in a higher ratio than that at which the percentage of variable capital falls. It must grow so much that in its new composition it requires not only the former amount of variable capital, but still more than this, for the purchase of labour-power. If the variable part of a capital of 100 falls from 40 to 20, the total capital must rise to more than 200 if it is to deploy a variable capital of more than 40.
Even if the exploited mass of the working population remains constant and it is only the length and intensity of the working day that increases, the mass of capital applied must still rise, since it must rise even if the same mass of labour is to be deployed under the former conditions of exploitation, with an altered composition of capital.
Thus the same development in the social productivity of labour is expressed, with the advance of the capitalist mode of production, on the one hand in a progressive tendency for the rate of profit to fall and on the other in a constant growth in the absolute mass of the surplus-value or profit appropriated; so that, by and large, the relative decline in the variable capital and profit goes together with an absolute increase in both. This two-fold effect, as explained, can be expressed only in a growth in the total capital that takes place more rapidly than the fall in the rate of profit. In order to apply an absolutely greater variable capital at a higher composition, or with a relatively steeper increase in the constant capital, the total capital must grow not only in the same proportion as this higher composition, but still faster than it. It follows from this that the more the capitalist mode of production is developed, the more an ever greater amount of capital is needed to employ the same amount of labour-power (and this is still more the case if the amount of labour-power is growing). The rising productivity of labour thus necessarily gives rise, on the capitalist basis, to a permanent apparent surplus working population. If the variable capital forms only a sixth of the total capital instead of a half, as formerly, then in order to employ the same amount of labour-power, the total capital must be tripled; but if it is to employ double the labour-power, this capital must be increased six-fold.
Previous economists, not knowing how to explain the law of the falling rate of profit, invoked the rising mass of profit, the growth in its absolute amount, whether for the individual capitalist or for the social capital as a whole, as a kind of consolation, but this was also based on mere commonplaces and imagined possibilities.
It is no more than a tautology to say that the mass of profit is determined by two factors, firstly by the rate of profit and secondly by the mass of capital applied at this rate. The fact that the mass of profit may possibly grow, therefore, despite a simultaneous fall in the rate of profit, is only an expression of this tautology and does not get us a single step further, since it is equally possible for the capital to grow without the mass of profit growing, and, indeed, the capital might even grow while the mass of profit falls. 25 per cent on 100 gives 25, 5 per cent on 400 gives only 20.35 But if the same reasons that make the profit, rate fall also promote accumulation, i.e. the formation of additional capital, and if all additional capital also sets additional labour in motion and produces additional surplus-value; if on the other hand the very fact of the fall in the rate of profit means that the constant capital and with it the total amount of the former capital has grown, then the entire process ceases to be a mystery. We shall see later on † how resort was made to deliberate miscalculation, in an attempt to swindle away the possibility of an increase in the mass of profit together with a decline in the profit rate.
We have seen how it is that the same reasons that produce a tendential fall in the general rate of profit also bring about an accelerated accumulation of capital and hence a growth in the absolute magnitude or total mass of the surplus labour (surplus-value, profit) appropriated by it. Just as everything is expressed upside down in competition, and hence in the consciousness of its agents, so too is this law – I mean this inner and necessary connection between two apparently contradictory phenomena. It is evident that, on the figures given above, a capitalist controlling a large capital will make more profit in absolute terms than a smaller capitalist making apparently high profits. The most superficial examination of competition also shows that, under certain conditions, if the bigger capitalist wants to make more room for himself on the market and expel the smaller capitalists, as in times of crisis, he makes practical use of this advantage and deliberately lowers his profit rate in order to drive the smaller ones from the field. Commercial capital in particular, which we shall discuss in more detail later, also exhibits phenomena that allow the fall in profit to be seen as a result of the expansion of business and hence of the capital concerned. We shall give the proper scientific expression for this false conception later on. Similar superficial considerations arise from comparing the rates of profit that are made in particular branches of business, according to whether these are subject to the regime of free competition or to monopoly. The entire shallow conception that thrives in the heads of the agents of competition can be found in our Roscher, namely his assertion that this reduction in the rate of profit is ‘more clever and more humane’. * Here the decline in the rate of profit appears as a result of the increase of capital and the capitalists’ consequent calculation that a lower rate of profit will enable them to tuck away a greater mass of profit. All this (with the exception of Adam Smith, on whom more later)† is based on a complete misconception of what the general rate of profit actually is and on the crude idea that prices are determined by adding a more or less arbitrary quota of profit onto the commodity’s actual value. Crude as these notions are, they are a necessary product of the upside-down way that the immanent laws of capitalist production present themselves within competition.
*
The law that the fall in the rate of profit occasioned by the development of productivity is accompanied by an increase in the mass of profit is also expressed in this way: the fall in the price of commodities produced by capital is accompanied by a relative rise in the amount of profit contained in them and realized by their sale.
Since the development of productivity and the higher composition of capital corresponding to it leads to an ever greater amount of means of production being set in motion by an ever smaller amount of labour, each aliquot part of the total product, each individual commodity or each specific group of commodities absorbs less living labour and also contains less objectified labour, both in terms of the depreciation of the fixed capital applied and in terms of the raw and ancillary materials that are consumed. Each individual commodity therefore contains a smaller sum of labour objectified in means of production and labour newly added in the course of production. The price of the individual commodity therefore falls. The profit contained in the individual commodity, may still increase for all that, if the rate of absolute or relative surplus-value rises. It contains less newly added labour, but the unpaid portion of this labour grows in proportion to the paid part. Yet this is only true within certain definite limits. With the enormous decrease, in the course of the advance of production, of the absolute amount of living labour newly added to the individual commodity, the unpaid labour it contains also undergoes an absolute decline, no matter how much it may have grown in relation to the paid portion. The profit on each individual commodity becomes very much reduced as labour productivity develops, despite the rise in the rate of surplus-value; and this reduction, just like the fall in the rate of profit, is slowed down only by the cheapening of the elements of constant capital and the other circumstances adduced in Part One of this volume, which increase the rate of profit with a given or even falling rate of surplus-value.
If there is a fall in the price of the individual commodities whose sum makes up capital’s total product, this means nothing more than that a given quantity of labour is realized in a greater mass of commodities, so that each individual commodity contains less labour than before. This is the case even if one part of the constant capital, e.g. raw material, rises in price. With the exception of isolated cases (e.g. when the productivity of labour cheapens all the elements of both constant and variable capital to the same extent), the rate of profit will fall, despite the higher rate of surplus-value: (1) because even a greater unpaid portion of the smaller total sum of newly added labour is less than a smaller aliquot unpaid portion of the greater total sum was, and (2) because the higher composition of capital is expressed, in the case of the individual commodity, in the fact that the whole portion of this commodity’s value that represents newly added labour falls in comparison with the portion of value that represents raw materials, ancillary materials, and wear and tear of the fixed capital. This change in the proportion between the various components of the individual commodity’s price, the decline in the portion of price that represents newly added living labour, and the increase in the portions of price that represent previously objectified labour – this is the form the decline of the variable capital as against the constant takes in the price of the individual commodity. Just as this decline is absolute for a given amount of capital, e.g. 100, so it is also absolute for each individual commodity as an aliquot part of the capital reproduced. Even so, the rate of profit, if calculated simply on the price elements of the individual commodity, would be expressed differently from how it actually is. And this is for the following reason.
(The rate of profit is calculated on the total capital applied, but for a specific period of time, in practice a year. The proportion between the surplus-value or profit made and realized in a year and the total capital, calculated as a percentage, is the rate of profit. And so this is not necessarily identical with a rate of profit in which it is not the year but rather the turnover period of the capital in question that is taken as the basis of calculation; it is only if this capital turns over precisely once in the year that the two things coincide.
To put it another way, the profit made in the course of a year is simply the sum of the profits on the commodities produced and sold in the course of that year. If we calculate the profit on the cost price of the commodities, we obtain a rate of profit p/k, where p is the profit realized in the course of the year and k is the sum of the cost prices of the commodities produced and sold in the same period. It is readily apparent that this profit rate p/k can only coincide with the actual profit rate p/C, mass of profit divided by the total capital, when k = C, i.e. when the capital turns over just once in the year.
Let us take three possible situations for an industrial capital.
I. A capital of £8,000 produces and sells 5,000 items of a certain commodity each year, at 30 shillings per item, so that its annual turnover is £7,500. On each item it makes a profit of 10 shillings, a total of £2,500 per year. Each item therefore contains a capital advance of 20 shillings and a profit of 10 shillings, so that the profit rate on each item is 10/20 = 50 per cent. In the sum of £7,500 turned over, £5,000 is capital advance and £2,500 is profit; the rate of profit on the turnover, f, is similarly 50 per cent. Reckoned on the basis of the total capital, however, the rate of profit p/C is 2,500/8,000 = 31 1/4 per cent.
II. Say that the capital now increases to £10,000. As a result of increased labour productivity, it is able to produce 10,000 items of the commodity each year at a cost price of 20 shillings. Say that it sells these with 4 shillings profit on each, i.e. at 24 shillings per item. The price of the annual product is then £12,000, of which £10,000 is capital advance and £2,000 is profit. p/k is 4/20 reckoned per item, or 2,000/10,000 reckoned on the annual turnover, i.e. in both cases 20 per cent, and since the total capital is equal to the sum of the cost prices, i.e. £10,000, the actual profit rate, p/C, is this time also 20 per cent.
III. Say that the capital grows to £15,000 and the productivity of labour continues to rise, so that it now produces annually some 30,000 items of the commodity at a cost price of 13 shillings each, selling these with 2 shillings profit, i.e. at 15 shillings. The annual turnover is therefore 30,000 × 15 shillings = £22,500, of which £19,500 is capital advance and £3,000 is profit. p/k is thus 2/13 = 3,000/19,500 = 15 5/13 per cent. p/C, on the other hand, is 3,000/15,000 = 20 per cent.
We see, therefore, that only in case II, where the capital value turned over is the same as the total capital, is the rate of profit on each item of the commodity or on the sum turned over the same as the profit rate calculated on the total capital. In case I, where the sum turned over is less than the total capital, the profit rate calculated on the cost price of the commodity is higher; in case III, where the total capital is less than the sum turned over, this profit rate is less than the actual rate of profit, calculated on the total capital. This is a general rule.
In commercial practice, the turnover is generally worked out only roughly. It is assumed that the capital has turned over once as soon as the sum of commodity prices realized reaches the sum of the total capital applied. But the capital can have completed a whole cycle only if the sum of the cost prices of the commodities realized equals the sum of the total capital. – F.E.)
We see here once again how important it is in capitalist production not to view the individual commodity or the commodity product of some particular period of time in isolation, as a simple commodity; it must rather be viewed as the product of the capital advanced, and in relation to the total capital that produces this commodity.
Even though the rate of profit cannot just be calculated by measuring the mass of surplus-value produced and realized against the portion of capital consumed which reappears in the commodity, but one must rather measure it against this portion plus the portion of capital which is admittedly not consumed, but is still applied in production and continues to serve there, the mass of profit can nevertheless only be equal to the mass of profit or surplus-value actually contained in the commodities and destined to be realized by their sale.
If industrial productivity increases, the price of the individual commodity falls. Less labour is contained in it, both paid and unpaid. The same labour may produce three times the product, for instance, in which case two-thirds less labour is needed for each individual item. Since profit can only be a portion of the labour contained in the individual commodity, the profit on each individual commodity must decrease, and this is true within certain limits even if the rate of surplus-value rises. In all cases, however, the profit on the total product does not fall below the original mass of profit as long as the capital continues to employ the same mass of workers as before at the same level of exploitation. (This can even be the case if fewer workers are employed at a higher level of exploitation.) For in the same ratio as the profit on the individual commodity falls, the number of products rises. The mass of profit remains the same, even though it is differently distributed over the sum of commodities; and this in no way changes the distribution between worker and capitalist of the quantity of value created by the newly added labour. The mass of profit can rise, employing the same amount of labour, only if the unpaid surplus labour grows, or, with the level of exploitation of labour remaining the same, if the number of workers increases. Both of these factors may operate simultaneously. In all these cases – and on the basis of our assumptions they imply a growth in the constant capital in relation to the variable, and an increase in the total capital applied – the individual commodity contains a smaller amount of profit, and the profit rate falls, even when calculated on the individual commodity; a given quantity of additional labour is expressed in a greater quantity of commodities, and the price of the individual commodity falls. Viewed abstractly, the rate of profit might remain the same despite a fall in the price of the individual commodity as a result of increased productivity, and hence despite a simultaneous increase in the number of these cheaper commodities – for example if the increase in productivity affected all the ingredients of the commodity uniformly and simultaneously, so that their total price fell in the same proportion as the productivity of labour increased, while the ratio between the various ingredients of the commodity’s price remained the same. The rate of profit could even rise, if a rise in the rate of surplus-value was coupled with a significant reduction in the value of the elements of constant capital, and fixed capital in particular. In practice, however, the rate of profit will fall in the long run, as we have already seen. In no case does the fall in the price of the individual commodity, taken by itself, permit any conclusion as to the rate of profit. It all depends on the size of the total capital involved in its production. Say that the price of one yard of material falls from 3 shillings to 1 2/3 shillings; if we know that before the fall in price, 1 2/3 shillings went on constant capital, 2/3 shillings on wages and 2/3 was profit, while after the fall in price 1 shilling went on constant capital, 1/3 shilling on wages and 1/3 shilling was profit, we still do not know whether the rate of profit has remained the same or not. This will depend on whether and by how much the total capital advanced has grown and how many yards more it produces in a given time.
The phenomenon arising from the nature of the capitalist mode of production, that the price of an individual commodity or a given portion of commodities falls with the growing productivity of labour, while the number of commodities rises; that the amount of profit on the individual commodity and the rate of profit on the sum of commodities falls, but the mass of profit on the total sum of commodities rises – this phenomenon simply appears on the surface as a fall in the amount of profit on the individual commodity, a fall in its price, and a growth in the mass of profit on the increased total number of commodities produced by the total social capital or the total capital of the individual capitalist. The matter is then conceived as if the capitalist voluntarily made less profit on the individual commodity, but compensated himself by the greater number of commodities which he now produces. This conception rests on the notion of profit upon alienation* which is derived from the viewpoint of commercial capital.
We have already seen, in Parts Four and Seven of Volume 1, how the growing mass of commodities, and the cheapening of the individual commodity that accompanies the rising productivity of labour, does not in itself affect the proportion of paid and unpaid labour in the individual commodity (in so far as these commodities do not go towards determining the price of labour-power), despite the falling price.
Since everything presents a false appearance in competition, in fact an upside-down one, it is possible for the individual capitalist to imagine: (1) that he reduces his profit on the individual commodity by cutting its price, but makes a bigger profit on account of the greater quantity of commodities that he sells; (2) that he fixes the price of the individual commodity and then determines the price of the total product by multiplication, whereas the original process is one of division (see Volume 1, Chapter 12, pp. 433–4), and this multiplication comes in only at second hand and is correct only on the premise of that division. In point of fact, the vulgar economist does nothing more than translate the peculiar notions of the competition-enslaved capitalist into an ostensibly more theoretical and generalized language, and attempt to demonstrate the validity of these notions.
In actual fact, the fall in commodity prices and the rise in the mass of profit on the increased mass of cheapened commodities is simply another expression of the law of the falling profit rate in the context of a simultaneously rising mass of profit.
An investigation of how far a falling rate of profit can coincide with rising prices would be no more pertinent here than the earlier point elaborated in Volume 1, pp. 433–4, in connection with relative surplus-value. The capitalist who employs improved but not yet universally used methods of production sells below the market price, but above his individual price of production; his profit rate thus rises, until competition cancels this out; in the course of this period of adjustment, the second requirement is fulfilled, i.e. growth in the capital laid out; and according to the level of this growth, the capitalist will then be in a position to employ a portion of the workers employed earlier, perhaps all of them or even a greater number, under the new conditions, and thus to produce the same amount of profit or even a larger amount.