Not only do increases in production often require machines to replace living labour but the increase in productivity necessarily increases the share of materials purchased and incorporated into the increased number of products produced. Materials which pass only their own value into the final product and no new surplus.
Marx is explicit on this general point – “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.” (Capital Volume III p 318)
Of course, there are often efficiencies created in the use of materials and also in the value and cost of machinery, which again is also a result of increased productivity in the industries that produce them. As Marx says “We see here once again how the same factors that produce the tendency for the rate of profit to fall also moderate the realisation of this tendency.” (Capital Volume III p 343) And, of course, while the number of workers may reduce, the time they spend creating value purely for the capitalist will increase.
These all offset any fall in the share of surplus value in the total value of production but irrespective of this, the compulsion to increase productivity and reduce the employment of labour and its cost, impels individual capitals to seek these improvements because individually they will be able to undercut costs in relation to rivals, while perhaps selling at the same or slightly lower price than competitors while making a more significant profit.
Should their new methods of production become generalised among the majority of capitalists in their sector of production, or the less productive ones fail and exit production, then the overall share of labour in that sector of production will fall and so will the share of surplus value and of profit. What makes sense for an individual capitalist reduces the share of profits for everyone in the sector – the development of the forces of production conflict with the relations of production which are based on seeking the greatest possible expansion of surplus value.
Such a fall in the amount of living labour in production can be offset by increased levels of exploitation but a rise in level of exploitation can check but may not cancel the fall in the rate of profit, and this is particularly so at high levels of organic composition of capital; although the latter assumes technological development that can do this across more and more industrial sectors, and increasingly so to new sectors and any new independent capitals thrown up.
A falling rate of profit may also be compensated by growth in the absolute size of surplus value although augmentation of this would decline if the absolute amount of living labour (variable capital) declines, or much more likely, its augmentation declines relatively if the quantity of living labour fails to grow at the relatively high rate commensurate with the growth of constant capital – machinery and materials etc.
While the rate of profit may fall, it may thus be the case that the mass of profit still rises, indeed given that capitalism involves the accumulation of more and more capital this mass must increase. Marx allows that the absolute size of variable capital and surplus value may rise – in fact it “must be the case . . . on the basis of capitalist production.” (Volume III pp 322 – 324) This is certainly the reality of capitalism since Marx developed his analysis.
“Capitalist production is accumulation involving concentration of capital is simply a material means for increasing productivity. Growth of the means of production entails growth in the working population and creation of a surplus population. (p324 – 325)
“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. . . The same laws , therefore, produce both a growing absolute mass of profit for the social capital, and a falling rate of profit.” (p 325) “A fall in the profit rate, and accelerated accumulation, are simply different expressions of the same process, in so far as both express the development of productivity. . .” (p349)
“Thus, the same development of the social productiveness of labour expresses itself with the progress of capitalist production on the one hand in a tendency of the rate of profit to fall progressively and, on the other, in a progressive growth of the absolute mass of the appropriated surplus-value, or profit; so that on the whole a relative decrease of variable capital and profit is accompanied by an absolute increase of both. This two-fold effect, as we have seen, can express itself only in a growth of the total capital at a pace more rapid than that at which the rate of profit falls.” (p329 – 330)
It will also be the case, to a greater or lesser extent, that new industries develop that require large amounts of living labour for their production, labour that can only be displaced by technology and machinery over a future, longer or shorter period of time.
New industries widen the range of commodities that capital can produce, and that can be used to produce them, which can create profit, i.e. that can become capital. The mass of material labour that capital can command depends not only on the value of capital but on the mass of use values that can act as consumption for workers or as means of production and materials of production. If the latter grows so can the quantity of labour employed, and therefore the accumulation of capital that can proceed, allowing capitalism to continue to develop the forces and relations of production.
It is argued that the growth of these new industries, increasingly ‘service industries’ involve higher relative amounts of living labour than the more mature manufacturing or other industry. Increased productivity in service industries does not generally involve increased consumption of raw materials even as productivity is increased, or at least not nearly to the same extent. Increased consumption of circulating constant capital (materials), which simply has its value transferred into the final product and does not add any surplus value but must be advanced as capital, does not occur to the same extent and so does not lead to a reduction in the rate of profit on that account.
Of course, it must be understood that many industries are described as service industries that actually produce physical commodities and these are subject to the same tendencies of development as classical manufacturing industry.
Infrastructure industries are sometimes considered as service industries but the water and sewerage industry for example produces a physical product and then transforms it. I recall visiting a new sewerage works that had a large bank of electronic equipment. When I asked the manger how many staff worked at the plant he said there was five, but these were all going to be transferred elsewhere because the plant could work remotely and required only a regular visit by one member of staff to check everything was ok.
Even health services, which in the UK has traditionally had a budget in which over 60 per cent is spent on staff salary and wages, relies more and more on expensive drug treatments and the use of high-tech equipment.
No contradictions are therefore escaped by the development of new industries, even some ‘service’ industries, they are simply reproduced, but then any expansion of capitalism must by definition reproduce its essential nature, which is riven by contradiction. However, it is not that nothing has thereby changed. The effect of these industries that develop upon a lower average organic composition of capital and higher rate of surplus value is to raise the average of both across the wider economy.
Marx at one point quotes six reasons why decline in the profit rate does not reduce accumulation. “Jones emphasises correctly that in spite of the falling rate of profit the inducements and faculties to accumulate are augmented; first, on account of the growing relative overpopulation; second, because the growing productivity of labour is accompanied by an increase in the mass of use-values represented by the same exchange-value, hence in the material elements of capital; third, because the branches of production become more varied; fourth, due to the development of the credit system, the stock companies, etc., and the resultant case of converting money into capital without becoming an industrial capitalist; fifth, because the wants and the greed for wealth increase; and, sixth, because the mass of investments in fixed capital grows, etc.”
At a recent meeting on Marx’s Capital, one speaker supported the view that the rate of profit did exhibit a tendency to fall and cited, among other reasons for this view, that such a situation confirmed the temporary character of the capitalist system in an objective way. This, even if it were true, would not thereby equally confirm the inevitability of socialism or even that the seeds of socialism had grown equally as strongly as capitalism was gripped by its objective contradictions.
There are no absolute, predetermined limits which set the boundaries on the development of capitalism such that the contradiction between the development of the forces of production and relations of production just described can be said to lead to a terminal crisis or ending of the capitalist system. The release of the forces of production from the fetters to their growth, arising from the requirement that such growth requires sufficient profitability that capitalism can no longer deliver, is not something that Marx foresaw as the resolution to the contradictions of capitalism.
The point rather is that the tendency for the rate of profit to fall is a fundamental one within capitalism that is inevitably associated with its equally fundamental drive to increase productivity through increasing relative surplus value. Both stem from the combined development of the forces of production and relations of production and from the need for capital to accumulate by increasing the appropriation of surplus value. This includes new production with new sources of human labour as well as both increases in absolute and relative surplus value.
It is not necessary for a fall in the rate of profit to be evident at all times, the process by which it falls proceeds regardless and is important in this respect. If the tendencies that counter this fall outweigh its effects this does not entail its unimportance, since the law exhibits the fact that new value is created only through labour power and the tendency for the fall in the rate of profit reflects this. The expansion of capitalism, both in terms of the forces and relations of production, requires masses of additional labour, in other words expansion of the numbers and social power of the working class, the gravediggers of the system as Marx saw it.
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