Capital: A Critique of Political Economy, Vol. III. The Process of Capitalist Production as a Whole

By Karl Marx

One of Econlib’s aims is to put online the most significant works in the history of economic thought, and there can be no doubting the significance of Marx’s influence on both economic theory in the late 19th century and on the creation of Marxist states in the 20th century. From the time of the emergence of modern socialism in the 1840s (especially in France and Germany), free market economists have criticised socialist theory and it is thus useful to place that criticism in its intellectual context, namely beside the main work of one of its leading theorists,
Karl Marx.In 1848, when Europe was wracked by a series of revolutions in which both liberals and socialists participated and which both lost out to the forces of conservative monarchism or Bonapartism,
John Stuart Mill published his
Principles of Political Economy. The chapter on Property shows how important Mill thought it was to confront the socialist challenge to classical liberal economic theory. In hindsight it might appear that Mill was too accommodating to socialist criticism, but I would argue that in fact he offered a reasonable framework for comparing the two systems of thought, which the events of the late 20th century have finally brought to a conclusion which was not possible in his lifetime. Mill states in
Book II Chapter I “Of Property” that a fair comparison of the free market and socialism would compare both the ideal of liberalism with that of socialism, as well as the practice of liberalism versus the practice of socialism. In 1848 the ideals of both were becoming better known (and there were some aspects of the ideal of socialism which Mill found intriguing) but the practice of each was still not conclusive. Mill correctly observed that in 1848 no European society had yet created a society fully based upon private property and free exchange and any future socialist experiment on a state-wide basis was many decades in the future. After the experiments in Marxist central planning with the Bolshevik Revolution in 1917, the Chinese Communists in 1949, and numerous other Marxist states in the post-1945 period, there can be no doubt that the reservations Mill had about the practicality of fully-functioning socialism were completely borne out by historical events. What Mill could never have imagined, the slaughter of tens of millions of people in an effort to make socialism work, has ended for good any argument concerning the Marxist form of socialism.Econlib now offers online two important defences of the socialist ideal, Karl Marx’s three volume work on
Capital and the
collection of essays on Fabian socialism edited by George Bernard Shaw. These can be read in the light of the criticism they provoked among defenders of individual liberty and the free market: Eugen Richter’s anti-Marxist
Pictures of the Socialistic Future, Thomas Mackay’s
2 volume collection of essays rebutting Fabian socialism,
Ludwig von Mises post-1917 critique of
Socialism. One should not forget that
Frederic Bastiat was active during the rise of socialism in France during the 1840s and that many of his essays are aimed at rebutting the socialists of his day. The same is true for Gustave de Molinari and the other authors of the
Dictionnaire d’economie politique (1852). Several key articles on communism and socialism from the
Dictionnaire are translated and reprinted in Lalor’s
Cyclopedia.For further reading on Marx’s
Capital see David L. Prychitko’s essay
“The Nature and Significance of Marx’s
Capital: A Critique of Political Economy“.For further readings on socialism see the following entries in the
Concise Encyclopedia of Economics:
Eastern Europe,
Marxism, and
Socialism.Also related:

Poor Law Commissioners’ Report of 1834,
edited by Nassau W. Senior, et al.

The Illusion of the Epoch: Marxism-Leninism as a Philosophical Creed by H. B. Acton

The Perfectibility of Man, by John Passmore
David M. Hart

March 1, 2004

Book Cover

Translator/Editor

Frederick Engels, ed. Ernest Untermann, trans.

First Pub. Date

1894

Publisher

Chicago: Charles H. Kerr and Co.

Pub. Date

1909

Comments

First published in German. Das Kapital, based on the 1st edition.

Copyright

The text of this edition is in the public domain. Picture of Marx courtesy of The Warren J. Samuels Portrait Collection at Duke University.

Part III, Chapter XIII

THE THEORY OF THE LAW.

PART III.

THE LAW OF THE FALLING TENDENCY OF THE RATE OF PROFIT.

WITH a given wage and working day, a certain variable capital, for instance of 100, represents a certain number of employed laborers. It is the index of this number. For instance, let 100 p.st. be the wages of 100 laborers for one week. If these laborers perform the same amount of necessary as of surplus-labor, in other words, if they work daily as much time for themselves as they do for the capitalist, or, in still other words, if they require as much time for the reproduction of their wages as they do for the production of surplus-value for the capitalist, then they would produce a total value of 200 p.st., and the surplus-value would amount to 100 p.st. The rate of surplus-value, s/V, would be 100%. But we have seen that this rate of surplus-value would express itself in considerably different rates of profit, according to the different volumes of constant capitals c and consequently of total capitals C. For the rate of profit is calculated by the formula s/C.

Take it that the rate of surplus-value is 100%. Now, if

c = 50, and v = 100, then p’ = 100/150, or 66 1/3%.

c = 100, and v = 100, then p’ = 100/200, or 50%.

c = 200, and v = 100, then p’ = 100/300, or 33 1/3%.

c = 300, and v = 100, then p’ = 100/400, or 25%.

c = 400, and v = 100, then p’ = 100/500, or 20%.

In this way, the same rate of surplus-value, with the same degree of labor exploitation, would express itself in a falling rate of profit, because the material growth of the constant capital, and consequently of the total capital, implies their growth in value, although not in the same proportion.

If it is furthermore assumed that this gradual change in the composition of capital is not confined to some individual spheres of production, but occurs more or less in all, or at least in the most important ones, so that they imply changes in the organic average composition of the total capital of a certain society, then the gradual and relative growth of the constant over the variable capital must necessarily lead to
a gradual fall of the average rate of profit, so long as the rate of surplus-value, or the intensity of exploitation of labor by capital, remain the same. Now we have seen that it is one of the laws of capitalist production that its development carries with it a relative decrease of variable as compared with constant capital, and consequently as compared to the total capital, which it sets in motion. This is only another way of saying that the same number of laborers, the same quantity of labor-power set in motion by a variable capital of a given value, consume in production an ever increasing quantity of means of production, such as machinery and all sorts of fixed capital, raw and auxiliary materials, and consequently a constant capital of ever increasing value and volume, during the same period of time, owing to the peculiar methods of production developing within the capitalist system. This progressive relative decrease of the variable capital as compared to the constant, and consequently to the total, capital is identical with the progressive higher organic composition of the average social capital. It is, in another way, but an expression of the progressive development of the productive powers of society, which is manifested by the fact that the same number of laborers, in the same time, convert an ever growing quantity of raw and auxiliary materials into products, thanks to the growing application of machinery and fixed capital in general, so that less labor is needed for the production of the same, or of more, commodities. This growing value and volume of constant
capital corresponds to a progressive cheapening of products, although the increase in the value of the constant capital indicates but imperfectly the growth in the actual mass of use-values represented by the material of the constant capital. Every individual product, taken by itself, contains a smaller quantity of labor than the same product did on a lower scale of production, in which the capital invested in wages occupies a far greater space compared to the capital invested in means of production. The hypothetical series placed at the beginning of this chapter expresses, therefore, the actual tendency of capitalist production. This mode of production produces a progressive decrease of the variable capital as compared to the constant capital, and consequently a continuously rising organic composition of the total capital. The immediate result of this is that the rate of surplus-value, at the same degree of labor-exploitation, expresses itself in a continually falling average rate of profit. (We shall see later why this fall does not manifest itself in an absolute form, but rather as a tendency toward a progressive fall.) This progressive tendency of the average rate of profit to fall is, therefore, but a peculiar expression of capitalist production for the fact that the social productivity of labor is progressively increasing. This is not saying that the rate of profit may not fall temporarily for other reasons. But it demonstrates at least that it is the nature of the capitalist mode of production, and a logical necessity of its development, to give expression to the average rate of surplus-value by a falling rate of average profit. Since the mass of the employed living labor is continually on the decline compared to the mass of materialised labor incorporated in productively consumed means of production, it follows that that portion of living labor, which is unpaid and represents surplus-value, must also be continually on the decrease compared to the volume and value of the invested total capital. Seeing that the proportion of the mass of surplus-value to the value of the invested total capital forms the rate of profit, this rate must fall continuously.

Simple as this law appears from the foregoing statements, all of political economy has so far tried in vain to discover it,
as we shall see later on. The economists saw the problem and cudgeled their brains in tortuous attempts to interpret it. Since this law is of great importance for capitalist production, it may be said to be that mystery whose solution has been the goal of the entire political economy since Adam Smith. The difference between the various schools since Adam Smith consists in their different attempts to solve this riddle. If we consider, on the other hand, that political economy up to the present has been tinkering with the distinction between constant and variable capital without ever defining it accurately; that it never separated surplus-value from profit, and never even considered profit in its purely theoretical form, that is, separated from its different subdivisions, such as industrial profit, commercial profit, interest, ground rent; that it never thoroughly analyzed the differences in the organic composition of capital, and for this reason never thought of analyzing the formation of an average rate of profit; if we consider all this, we no longer wonder at its failure to solve the riddle.

We intentionally analyze first this law, before we pass on to a consideration of the different independent categories into which profit is subdivided. The fact that this analysis is made independently of the subdivisions of profit, which fall to the share of different categories of persons, shows in itself that this law, in its general workings, is independent of those subdivisions and of the mutual relations of the resulting categories of profit. The profit to which we are here referring is but another name for surplus-value itself, which is merely observed in its relation to the total capital, instead of its relation to the variable capital from which it arises. The fall in the rate of profit therefore expresses the falling relation of surplus-value itself to the total capital, and is for this reason independent of any division of this profit among various participants.

We have seen that a certain stage of capitalist development, in which the organic composition of capital, c : v shows the proportion of 50 : 100, expresses a rate of surplus-value of 100% by a rate of profit of 66 2/3%, and that a higher stage, in
which c : v shows the proportion 400:100, expresses the same rate of surplus-value by a rate of profit of only 20%. What is true of different successive stages in the same country, is also true of different contemporaneous stages of development in different countries. In an undeveloped country, in which the first-named composition of capital is the rule, the average rate of profit would be 66 2/3%, while in a country with the other, higher, stage of development, the average rate of profit would be 20%.

The difference between two national rates of profit might be eliminated, or even reversed, if labor were less productive in the less developed country, so that a larger quantity of labor would be incorporated in a smaller quantity of the same commodities, a larger exchange-value represented by a smaller use-value, so that the laborer would consume a larger portion of his time in the reproduction of his own means of subsistence, or of their value, and have less time to spare for the production of surplus-value, and consequently would perform less surplus-labor, so that the rate of surplus-value would be lower. For instance, if the laborer of the less developed country were to work two-thirds of the working day for himself, and one-third for the capitalist, then, referring to the above illustration, the same labor-power would be paid with 133 1/3 and would furnish a surplus of only 66 2/3. A constant capital of 50 would correspond to a variable capital of 133 1/3. The rate of surplus-value would then amount to 133 1/3 : 66 2/3 = 50%, and the rate of profit to 183 1/3 : 66 2/3 = about 36½%.

Since we have not analysed the different subdivisions of profit, so that they do not exist for the present so far as we are here concerned, we make the following preliminary remarks merely in order to prevent misunderstanding: It would be a mistake to measure the level of the national rate of profit by, say, the level of the national rate of interest, when comparing countries in different stages of development, especially when comparing countries with a developed capitalist production to countries, in which labor has not yet been fully subjected to capital, although the laborer may already
be exploited by the capitalist, as happens, for instance, in India, where the ryot manages his farm as an independent producer, whose production, strictly so called, is not yet under the complete sway of capital, although the usurer may not only rob him of his entire surplus-labor by means of interest, but also curtail his wages, to use a capitalist term. For the interest of such stages comprises all of the profit, and more than the profit, instead of merely expressing an aliquot part of the produced surplus-value, or profit, as it does in countries with a developed capitalist production. On the other hand, the rate of interest in capitalist countries is overwhelmingly determined by conditions (loans granted by usurers to owners of large estates who draw ground-rent) which have nothing to do with profit, but which merely indicate to what extent usury appropriates ground-rent.

In countries with capitalist production in different stages of development, and consequently with capitals of different organic composition, a country with a short normal working day may have a higher rate of surplus-value (the one factor which determines the rate of profit) than a country with a long normal working day. In the first place, if the English working day of 10 hours, on account of its higher intensity, is equal to an Austrian working day of 14 hours, then dividing the working day equally in both instances, 5 hours of English surplus-labor may represent a greater value on the world-market than 7 hours of Austrian surplus-labor. In the second place, a larger portion of the English working day may represent surplus-labor than of the Austrian working day.

The law of the falling tendency of the rate of profit, which is the expression of the same, or even of a higher, rate of surplus-value, says in so many words: If you take any quantity of the average social capital, say a capital of 100, you will find that an ever larger portion of it is invested in means of production, and an ever smaller portion in living labor. Since, then, the aggregate mass of the living labor operating the means of production decreases in comparison to the value of these means of production, it follows that the unpaid labor, and that portion of value in which it is expressed, must decline
as compared to the value of the advanced total capital. Or, an ever smaller aliquot part of the invested total capital is converted into living labor, and this capital absorbs in proportion to its magnitude less and less surplus-labor, although the proportion of the unpaid part of the employed labor may simultaneously grow as compared with the paid part. The relative decrease of the variable, and the relative increase of the constant, capital, while both parts may grow absolutely in magnitude, is but another expression for the increased productivity of labor.

Let a capital of 100 consist of 80 c + 20 v, and let the 20 v stand for 20 laborers. Let the rate of surplus-value be 100%, that is to say, the laborers work one-half of the day for themselves and the other half for the capitalist. Now take a less developed country, in which a capital of 100 is composed of 20 c + 80 v, and let these 80 v stand for 80 laborers. But let these laborers work two-thirds of the day for themselves, and only one-third for the capitalists. Assuming all other things to be equal, the laborers in the first case will produce a value of 40, while those in the second case will produce a value of 120. The first capital produces 80 c + 20 v + 20 s = 120; rate of profit 20%. The second capital produces 20 c+80 v+40 s=140; rate of profit 40%. In other words, the rate of profit in the second case is double that of the first case, and yet the rate of surplus-value in the first case is 100%, while it is only 50% in the second case. But a capital of the same magnitude appropriates in the first case the surplus-labor of only 20 laborers, while it appropriates that of 80 laborers in the second case.

The law of the falling tendency of the rate of profit, or of the relative decline of the appropriated surplus-labor compared to the mass of materialised labor set in motion by living labor does not argue in any way against the fact that the absolute mass of the employed and exploited labor set in motion by the social capital, and consequently the absolute mass of the surplus-labor appropriated by it, may grow. Nor does it argue against the fact that the capitals controlled by individual capitalists may dispose of a growing mass of labor
and surplus-labor, even though the number of the laborers employed by them may not grow.

Take for illustration’s sake a certain population of working people, for instance, two millions. Assume, furthermore, that the length and intensity of the average working day, and the level of wages, and thereby the proportion between necessary and surplus-labor, are given. In the case the aggregate labor of these two millions, and their surplus-labor expressed in surplus-value, represent always the same magnitude of values. But with the growth of the mass of the constant (fixed and circulating) capital, which this labor manipulates, the proportion of this produced quantity of values declines as compared to the value of this total capital. And the value of this capital grows with its mass, although not in the same proportion. This proportion, and consequently the rate of profit, falls in spite of the fact that the same mass of living labor is controlled as before, and the same amount of surplus-labor absorbed by the capital. This proportion changes, not because the mass of living labor decreases, but because the mass of the materialised labor set in motion by living labor increases. It is a relative decrease, not an absolute one, and has really nothing to do with the absolute magnitude of the labor and surplus-labor set in motion. The fall of the rate of profit is not due to an absolute, but only to a relative decrease of the variable part of the total capital, that is, its decrease as compared with the constant part.

The same thing which applies to any given mass of labor and surplus-labor, applies also to a growing number of laborers, and thus under the above assumptions, to any growing mass of the controlled labor in general and to its unpaid part, the surplus-labor, in particular. If the laboring population increases from two million to three million, if, furthermore, the variable capital invested in wages also rises to three million from its former amount of two million, while the constant capital rises from four million to fifteen million, then the mass of surplus-labor, and of surplus-value, under the above assumption of a constant working day and a constant rate of surplus-value, rises by 50%, that is, from two million to
three million. Nevertheless, in spite of this growth in the absolute mass of surplus-labor and surplus-value by 50%, the proportion of the variable to the constant capital would fall from 2 : 4 to 3 : 15, and the proportion of the surplus-value to the total capital, expressed in millions, would be

I. 4 c + 2 v + 2 s; C = 6, p’ = 33 1/3%.

II. 15 c + 3 v + 3 s; C = 18, p’ = 16 2/3%.

While the mass of surplus-value has increased by one-half, the rate of profit has fallen by one-half. However, the profit is only the surplus-value calculated on the total social capital, so that its absolute magnitude, socially considered, is the same as the absolute magnitude of the surplus-value. In this case, the absolute magnitude of the profit would have grown by 50%, in spite of its enormous relative decrease compared to the advanced total capital, or in spite of the enormous fall of the average rate of profit. We see, then, that in spite of the progressive fall of rate of profit, there may be an absolute increase of the number of laborers employed by capital, an absolute increase of the labor set in motion by it, an absolute increase of the mass of surplus-labor absorbed, a resulting absolute increase of the produced surplus-value, and consequently an absolute increase in the mass of the produced profit. And this increase may be progressive. And it
may not only be so. On the basis of capitalist production, it
must be so, aside from temporary fluctuations.

The capitalist process of production is essentially a process of accumulation. We have shown that the mass of values, which must be simply reproduced and maintained, increases progressively with the development of capitalist production to the extent that the productivity of labor grows, even if the employed labor-power should remain constant. But the development of social productivity carries with it a still greater increase of the produced use-values, of which the means of production form a part. And the additional labor, whose appropriation reconverts this additional value into capital, does not depend on the value, but on the mass of these means of production (including the means of subsistence), because the laborer in the productive process is not operating with the
exchange-value, but with the use-value of the means of production. Accumulation itself, however, and the concentration of capital that goes with it, is a material means of increasing the productive power. Now, this growth of the means of production includes the increase of the laboring population, the creation of a laboring population which corresponds to the surplus-capital or even exceeds its general requirements, leading to an overpopulation of working people. A momentary excess of the surplus-capital over the laboring population controlled by it would have a twofold effect. It would, on the one hand, mitigate the conditions, which decimate the offspring of the laboring class and would facilitate marriages among them, by raising wages. This would tend to increase the laboring population. On the other hand, it would employ the methods by which relative surplus-value is created (introduction and improvement of machinery) and thereby create still more rapidly an artificial relative overpopulation, which in its turn would be a hothouse for the actual propagation of its numbers, since under capitalist production poverty propagates its kind. The nature of the capitalist process of accumulation, which process is but an element in the capitalist process of production, implies as a matter of course that the increased mass of means of production, which is to be converted into capital, must always find on hand a corresponding increase, or even an excess, of laboring people for exploitation. The progress of the process of production and accumulation
must, therefore, be accompanied by a growth of the mass of available and appropriated surplus-labor, and consequently by a growth of the absolute mass of profit appropriated by the social capital. But the same laws of production and accumulation increase the volume and value of the constant capital in a more rapid progression than those of the variable capital invested in living labor. The same laws, then, produce for the social capital an increase in the absolute mass of profit and a falling rate of profit.

We leave out of consideration the fact that the same amount of values represents a progressively increasing mass of use-values and enjoyments to the extent that the capitalist process
of production carries with it a development of the productive power of social labor, a multiplication of the lines of production, and an increase of products.

The development of capitalist production and accumulation lifts the processes of labor to a higher scale and gives them greater dimensions, which imply larger investments of capital for each individual establishment. A growing concentration of capitals (accompanied by a growing number of capitalists, though not to the same extent) is therefore one of the material requirements of capitalist production as well as one of the results produced by it. Hand in hand with it, and mutually interacting, goes a progressive expropriation of the more or less direct producers. It is, then, a matter of course for the capitalists that they should control increasing armies of laborers (no matter how much the variable capital may relatively decrease in comparison to the constant capital), and that the mass of surplus-value, and of profit, appropriated by them, should grow simultaneously with the fall of the rate of profit, and in spite of it. The same causes which concentrate masses of laborers under the control of capitalists, are precisely those which also swell the mass of fixed capital, auxiliary and raw materials in a growing proportion as compared to the mass of the employed living labor.

It requires but a passing notice at this point, that, given a certain laboring population, the mass of surplus-value, and therefore the absolute mass of profit, must grow if the rate of surplus-value increases by a prolongation or intensification of the working day, or by a lowering of the value of wages through a development of the productive power of labor, and must do so in spite of the relative decrease of the variable capital compared to the constant.

The same development of the productive power of social labor, the same laws, which express themselves in a relative fall of the variable as compared to the total capital and in a correspondingly hastened accumulation, while this accumulation in its turn becomes the starting point of a further development of the productive power and of a further relative fall of the variable capital, this same development manifests
itself, aside from temporary fluctuations, by a growing increase of the employed total labor-power, a growing increase of the absolute mass of surplus-value, and consequently of profits.

Now, in what form must this two-faced law with the same causes for a decrease of the
rate of profits and a simultaneous increase of the absolute mass of profits show itself? A law based on the fact that under certain conditions the appropriated mass of surplus-labor, and consequently of surplus-value, increases, and that, so far as the total capital is concerned, or the individual capital as an aliquot part of the total capital, profit and surplus-value are identical magnitudes?

Take that aliquot part of capital which is the basis of our calculation of the rate of profit, for instance 100. These 100 illustrate the average composition of the total capital, say 80 c + 20 v. We have seen in the second part of this volume, that the average rate of profit is determined, not by the particular composition of individual capital, but by the average composition of social capital. If the variable capital decreases as compared to the constant, or to the total capital, then the rate of profit, or the relative magnitude of surplus-value calculated on the total capital, falls even though the intensity of exploitation were to remain the same, or even to increase. But it is not this relative magnitude alone which falls. The magnitude of the surplus-value or profit absorbed by the total capital of 100 also falls absolutely. At a rate of surplus-value of 100%, a capital of 60 + 40 produces a mass of surplus-value and profit amounting to 40; a capital of 70 c + 30 v a mass of profit of 30; a capital of 80 c + 20 v produces only 20 of profit. This fall refers to the mass of surplus-value and thus of profit, and is due to the fact that the total capital of 100, with the same intensity of labor exploitation, employs less living labor, sets in motion less labor-power, and therefore produces less surplus-value. Taking any aliquot part of the social capital, this is, of capital of average composition, as a standard by which to measure surplus-value—and this is done in all calculations of profit—a relative fall of surplus-value is identical with its absolute
fall. The rate of profit sinks in the above cases from 40% to 30% and 20%, because the mass of surplus-value, and of profit, produced by the same capital falls absolutely from 40 to 30 and 20. Since the magnitude of the value of capital, by which the surplus-value is measured, is given as 100, a fall in the proportion of surplus-value to this given magnitude can be only another expression for the fact that surplus-value and profit decrease absolutely. This is, of course, a tautology. But we have demonstrated that the nature of the capitalist process of production brings about this decrease.

On the other hand, the same causes which bring about an absolute decrease of surplus-value and profit on a given capital, and consequently in the percentage of the rate of profit, produce an increase of the absolute mass of surplus-value and profit appropriated by the total capital (that is, by the capitalists as a whole). How can this be explained, and what is the only way in which this can be explained, or what are the conditions on which this apparent contradiction is based?

While any aliquot part, any 100 of the social capital, any 100 of average social composition, is a given magnitude, for which a fall in the rate of profit implies a fall in the absolute magnitude of profit, just because the capital which serves as a standard of measurement is a constant magnitude, the magnitude of the social capital, on the other hand, as well as that of the capital in the hands of individual capitalists, is variable, and in keeping with our assumptions it must vary inversely to the decrease of its variable portion.

In our former illustration, when the percentage of composition was 60 c + 40 v, the corresponding surplus-value and profit was 40, and the rate of profit 40%. Take it that the total capital in this stage of composition was one million. In that case the total surplus-value, and total profit, amounted to 400,000. Now, if the composition changes later to 80 c + 20 v, while the degree of labor exploitation remains the same, then the surplus-value and profit for each 100 is 20. But as we have demonstrated that the absolute mass of surplus-value and profit increases in spite of the fall of the rate of profit, in spite of the decrease in the production of surplus-value by
a capital of 100, that it grows, say, from 400,000 to 440,000, there is no other way in which this could be brought about than by a growth of the total capital to 2,200,000 to the extent that this new composition developed. The mass of the total capital set in motion has risen by 220%, while the rate of profit has fallen by 50%. If the total capital had only been doubled, it could have produced no more surplus-value and profit with a rate of profit of 20% than the old capital of 1,000,000 at a rate of 40%. If it had grown to less than twice its old size, it would have produced less surplus-value or profit than the old capital of 1,000,000 which, with its former composition, would have had to grow from 1,000,000 to no more than 1,100,000, in order to raise its surplus-value from 400,000 to 440,000.

We meet here once more the previously analysed law, that the relative decrease of the variable capital, or the development of the productive power of labor, requires an increasing mass of total capital for the purpose of setting in motion the same quantity of labor-power and absorbing the same quantity of surplus-labor. Consequently the possibility of a relative surplus of laboring people develops to the extent that capitalist production advances, not because the productive power of social labor
decreases, but because it
increases. Relative overpopulation does not arise out of an absolute disproportion between labor and means of subsistence, or of means for the production of these means of existence, but out of a disproportion due to the capitalist exploitation of labor, a disproportion between the growing increase of capital and its relatively decreasing demand for an increase of population.

A fall in the rate of profit by 50% means its fall by one-half. If the mass of profit is to remain the same, the capital must be doubled. In order that the mass of profit made at a declining rate of profit may remain the same as before, the multiplier indicating the growth of the total capital must be equal to the divisor indicating the fall of the rate of profit. If the rate of profit falls from 40 to 20, the total capital must rise at the rate of 20 to 40, in order that the result may remain the same. If the rate of profit had fallen from 40 to 8,
the capital would have to increase at the rate of 8 to 40, or five times its value. A capital of 1,000,000 at a rate of 40% produces 400,000, and a capital of 5,000,000 at a rate of 8% likewise produces 400,000. This applies, so long as the result is to remain the same. But if the result is to be higher, then the capital must grow at a faster rate than the rate of profit falls. In other words, in order that the variable portion of the total capital may not only remain the same, but may also increase absolutely, although its percentage in the total capital falls, the total capital must grow at a higher rate than the percentage of the variable capital falls. It must grow at such a rate that it requires in its new composition not merely the same old variable capital, but more than it for the purchase of labor-power. If the variable portion of a capital of 100 falls from 40 to 20, the total capital must rise higher than 200, in order to be able to employ a larger variable capital than 40.

Even if the mass of the exploited laboring population were to remain constant, and only the length and intensity of the working day to increase, the mass of the invested capital would have to increase, since it must rise for the mere purpose of employing the same mass of labor under the old conditions of exploitation as soon as the composition of capital varies.

In short, the same development of the social productivity of labor expresses itself in the course of capitalist production on the one hand in a tendency to a progressive fall of the rate of profit, and on the other hand in a progressive increase 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 twofold effect, as we have seen, can express itself only in a growth of the total capital at a ratio more rapid than that expressed by the fall in the rate of profit. In order that an absolutely increased variable capital may be employed in a capital of higher composition, that is, a capital in which the constant capital has relatively increased still more than the variable, the total capital must one only grow in proportion
to its higher composition, but even still more rapidly. It follows, then, that an ever larger quantity of capital is required in order to employ the same, and still more an increased amount of labor-power, to the extent that the capitalist mode of production develops. The increasing productivity of labor thus creates necessarily and permanently an apparent overpopulation of laboring people. If the variable capital forms only one-sixth of the total capital instead of one-half, as before, then the total capital must be trebled in order to employ the same amount of labor-power. And if the labor-power to be employed is doubled, then the total capital must be multiplied by six.

Political economy has so far been unable to explain the law of the falling tendency of the rate of profit. So it pointed as a consolation to the increasing mass of profit, the increase in the absolute magnitude of profit for the individual capitalist as well as for the social capital, but even this consolation was based on mere commonplaces and probabilities.

It is simply a tautology to say that the mass of profit is determined by two factors, namely first the rate profit, and secondly by the mass of capital invested at this rate. It is therefore but a corollary of this tautology to say that there is a possibility for the increase of the mass of profit even though the rate of profit may fall at the same time. This does not help us to get one step farther, since there is also a possibility that the capital may increase without resulting in an increase of the mass of profit, and that it may even increase while the mass of profit is already falling. For 100 at 25% make 25, while 400 at 5% make only 20.
*35 But if the same
causes, which bring about a fall in the rate of profit, promote the accumulation, that is, the formation of additional capital, and if each additional capital employs additional labor and produces additional surplus-value; when, on the other hand, the mere fall in the rate of profit implies the fact that the constant capital, and with it the total old capital, have increased, then this process ceases to be mysterious. We shall see later, to what falsifications of calculations some people have recourse in order to deny the possibility of an increase in the mass of profits while the rate of profits is simultaneously decreasing.

We have shown that the same causes, which bring about a tendency of the average rate of profits to fall, necessitate also an accelerated accumulation of capital and consequently an increase in the absolute magnitude, or total mass, of the surplus-labor (surplus-value, profit) appropriated by it. Just as everything is reversed in competition, and thus in the consciousness of its agents, so is also this law, this internal and necessary connection between two apparent contradictions. It is evident, within the proportions indicated above, that a capitalist disposing of a large capital will receive a larger mass of profits than a small capitalist making apparently high profits. A superficial observation of competition shows furthermore that under certain circumstances, when the greater capitalist wishes to make more room for himself on the market by pushing aside the smaller ones, as happens in times of commercial crises, he makes a practical use of this, that is, he lowers his rate of profit intentionally in order to crowd the smaller ones off the field. Particularly merchant’s capital, as we shall show at length later on, shows symptoms, which seem to attribute the fall in profits to an expansion of the business,
and thus of capital. We shall later on give a scientific expression for this false conception. Similar superficial observations result from the comparison of rates of profit made in some particular lines of business, according to whether they are subject to free competition or to monopoly. The utterly shallow conception existing in the heads of the agents of competition is found in our Roscher, namely the idea that a reduction of the rate of profits is “more prudent and humane.” The fall in the rate of profit is in this case attributed to an increase of capital, it appears as a
consequence of this increase, and of the resultant calculation of the capitalist that the mass of profits to be pocketed by him will be greater at a smaller rate of profits. This entire conception (with the exception of that of Adam Smith, which we shall mention later) rests on the utter misapprehension of what the average rate of profit represents and on the crude idea that prices are indeed determined by adding a more or less arbitrary amount of profit to the actual value of the commodities. Crude as these ideas are, they arise necessarily out of the inverted aspect which the immanent laws of capitalist production represent under competition.

The law that the fall in the rate of profit due to the development of the productive powers is accompanied by an increase in the mass of profit expresses itself furthermore in the fact that a fall in the price of commodities produced by capital is accompanied by a relative increase of the masses of profit contained in them and realised by their sale.

Since the development of the productive powers and the higher composition of capital corresponding to it set in motion an ever increasing quantity of means of production with an ever decreasing quantity of labor, every aliquot part of the total product, every single commodity, or every particular quantity of commodities in the total mass of products absorbs less living labor, and also contains less materialised labor, both as to the wear and tear of fixed capital and to the raw and auxiliary materials consumed. Every single commodity, then, contains a smaller amount of labor materialised in means of production and of labor newly added during production.
Hence the price of the individual commodity falls. The mass of profits contained in the individual commodities may nevertheless increase, if the rate of the absolute or relative surplus-value grows. The commodity then contains less newly added labor, but its unpaid portion grows over its paid portion. However, this is the case only within certain limits. In the course of the development of production, with the enormously growing absolute decrease of the amount of living labor newly embodied in the individual commodities, the mass of unpaid labor contained in them will likewise decrease absolutely, however much it may have grown as compared to their paid portion. The mass of profit on each individual commodity will decrease considerably with the development of the productive power of labor, in spite of the increase of the rate of surplus-value. And this reduction, the same as the fall in the rate of profits, is only delayed by the cheapening of the elements of constant capital and the other circumstances mentioned in the first part of this volume, which increase the rate of profit at a stable, or even falling, rate of surplus-value.

To say that the price of the individual commodities falls, which together make up the total product of the capital, is simply to say that a certain quantity of labor is realised in a larger quantity of commodities, so that each individual commodity contains less labor than before. This is the case even if the price of one of the parts of constant capital, such as raw material, etc., should rise. With the exception of a few cases (for instance, if the productive power of labor cheapens all the elements of constant and variable capital uniformly) the rate of profit will fall in spite of the increased rate of surplus-value, 1), because even a larger unpaid portion of the smaller total amount of newly added labor is smaller than a smaller aliquot portion of unpaid labor was in the former large amount of total labor, and 2), because the higher composition of the capital is expressed through the individual commodity by the fact that that portion of its value, in which newly added labor is materialised, decreases as compared to that portion of its value, which represents raw material, auxiliary
material, and wear and tear of fixed capital. This change in the proportions of the various component parts of the price of the individual commodities, the decrease of that portion of their price, in which newly added labor is materialised, and the increase of that portion, in which formerly materialised labor is represented, is that form which expresses through the price of the individual commodities the decrease of the variable capital as compared to the constant capital. To the extent that this decrease is absolute for a certain amount of capital, for instance 100, it is also absolute for every individual commodity as an aliquot part of the reproduced capital. However, the rate of profit, if calculated merely on the elements of the price of the individual commodity, would be different from what it actually is. The reason for this is as follows:

[The rate of profit is calculated on the total capital invested, but only for a definite time, in fact, for one year. The rate of profit is the proportion of the surplus-value, or profit, made and realised on the total capital and calculated in percentages. It is, therefore, not necessarily equal to a rate of profit, whose calculation was not based on one year, but on the period of turn-over of the invested capital. These two things do not coincide, unless the capital is turned over exactly in one year.

On the other hand, the profit made in the course of one year is merely the sum of the profits on the commodities produced and sold during the same year. Now, if we calculate the profit on the cost-price of the commodities, we obtain a rate of profit = p/k, in which p stands for the profit realised during one year, and k for the sum of the cost-prices of the commodities produced and sold during that year. It is evident that this rate of profit p/k will not coincide with the actual rate of profit p/c, or mass of profit divided by the total capital, unless k = C, that is, unless the capital is turned over in exactly one year.

Let us take three different conditions of some industrial capital.

I.—A capital of 8,000 p.st. produces and sells annually 5,000 pieces of commodities, at 30 sh. per piece, making an annual turn-over of 7,500 p.st. It makes a profit of 10 sh. on each piece, or 2,500 p.st. per year. Every piece, then, contains 20 sh. of capital advance, and 10 sh. of profit, so that the rate of profit per piece if 10/20 = 50%. The turned-over sum of 7,500 p.st. contains 5,000 p.st. of advanced capital and 2,500 p.st. of profits. Rate of profit for one turn-over, p/k, likewise 50%. But the rate of profit calculated on the total capital is the rate of profit p/c = 2500/8000 = 31¼%.

II.—Let the capital increase to 10,000 p.st. Owing to an increased productivity of labor, let it be enabled to produce annually 10,000 pieces of commodities at a cost-price of 20 sh. per piece. Let these commodities be sold at a profit of 4 sh., in other words, at 24 sh. per piece. In that case the price of the annual product is 12,000 p.st., of which 10,000 p.st. is advanced capital and 2,000 p.st. profits. The rate of profit p/k is 4/20 per piece and 2000/10,000 for the annual turn-over, or in both cases = 20%. And since the total capital is equal to the sum of the cost-prices, namely 10,000 p.st., it follows that p/c, the actual rate of profit, is in this case also 20%.

III.—Let the capital increase to 15,000 p.st., owing to a further growth of the productive power of labor, and let it produce annually 30,000 pieces of commodities at a cost-price of 13 sh. per piece, each piece being sold at a profit of 2 sh., or at 15 sh. per piece. The annual turn-over amounts in that case to 30,00 × 15 sh., = 22,500 p.st., of which 19,500 are advanced capital and 3,000 p.st. profits. The rate of profit p/k is then 2/13 = 3000/19,500 = 15 5/13%. But the actual rate of profit p/c = 3000/15,000 = 20%.

We see, then, that only in case II, where the turned-over capital-value is equal to the total capital, is the rate of profit per piece, or per total amount turn-over, the same as the rate of profit calculated on the total capital. In case I, where the amount of the turn-over is smaller than the total capital, the rate of profit calculated on the cost-price of the commodities is higher. In case III, where the total capital is smaller
than the amount of the turn-over, the rate of profit calculated on the cost-price of commodities is smaller than the actual rate calculated on the total capital. This is a general rule.

In commercial practice the turn-over is generally calculated inaccurately. It is assumed that the capital has been turned over once, as soon as the sum of the realised commodity-prices equals the sum of the invested total capital. But the
capital can complete one whole turn-over only in the case that the sum of the
cost-prices of the realised commodities equals the sum of the total capital.—F. E.]

This demonstrates once more how important it is under the capitalist mode of production that the individual commodities or the commodity-product of a certain period should not be considered as isolated by themselves, as mere commodities, but as products of advanced capital and in their relation to the total capital, which produces them.

Although the
rate of profit must be calculated by measuring the mass of the produced and realised surplus-value by the consumed portion of capital reappearing in the commodities as well as by the sum of this portion plus that portion of capital which, though not consumed, is employed and continues to serve in production, the
mass of profit cannot be equal to anything but the mass of profit, or surplus-value, contained in the commodities themselves and to be realised by their sale.

This phenomenon arising from the nature of the capitalist mode of production, namely, that an increase in the productivity of labor implies a fall in the price of the individual commodity, or of a certain mass of commodities, an increase in the number of commodities, a reduction of the mass of profit in the individual commodity and of the rate of profit on the aggregate of commodities, an increase of the mass of profit in the total quantity of commodities, this phenomenon shows itself on the surface only in a reduction of the mass of profit in the individual commodities, in a fall of their prices, in an increase of the mass of profits in the augmented number of commodities as a whole, which have been produced by the total capital of society or by that of the individual capitalist. It is then imagined that the capitalist adds less profits to the price of the individual commodities on his own free volition and makes up for it by the returns on a greater number of commodities produced by him. This conception rests upon the idea of profit upon alienation, which in its turn is deduced from the ideas of merchant’s capital.

We have seen previously, in parts four and seven of Book I, that the growth in the mass of commodities resulting from the productivity of labor and the consequent cheapening of the commodities as such (unless these commodities become determining elements in the price of labor-power) do not affect the proportion between paid and unpaid labor in the individual commodities, in spite of the fall in price.

Since everything appears inverted under competition, the individual capitalist may imagine: 1) That he is reducing his profit on the individual commodity by cutting its price,
but still making a greater profit on account of the larger quantity of commodities which he is selling; 2) that he is fixing the price of the individual commodities and determining the price of the total product by multiplication, while the original process is really one of division (see Book I, chapter XII) and the multiplication is correct only in a secondary way, being based on that division. The vulgar economist does practically no more than to translate the queer concepts of the capitalists, who are in the thralls of competition, into a more theoretical and generalising language and to attempt a vindication of the correctness of those conceptions.

Practically, a fall in the prices of commodities and a rise in the mass of profits contained in the augmented mass of these cheapened commodities is but another expression for the law of the falling rate of profit with a simultaneous increase in the mass of profits.

The analysis of the extent to which a falling rate of profit may coincide with rising prices does not belong in this chapter any more than that of the point previously discussed in volume I, chapter XII, concerning relative surplus-value. A capitalist working with improved methods of production that have not yet become general sells below the market-price, but above his individual price of production. In this way his rate of profit rises until competition levels it down. During this leveling period the second requisite puts in its appearance, namely the expansion of the invested capital. According to the degree of this expansion the capitalist will be enabled to employ a part of his former laborers under the new conditions, and eventually all of them or more, in other words, he will be enabled to produce the same or a greater mass of profits.

35.

“We should also expect that, however the rate of the profits of stock might diminish in consequence of the accumulation of capital on the land and the rise of wages, yet the aggregate amount of profits would increase. Thus, supposing that, with repeated accumulations of 100,000 p.st., the rate of profits should fall from 20 to 19, to 18, to 17%, a constantly diminishing rate; we should expect that the whole amount of profits received by those successive owners of capital would be always progressive; that it would be greater when the capital was 200,000 p.st., than when 100,000 p.st.; still greater when 300,000 p.st,; and so on, increasing, though at a diminishing rate, with every increase of capital. This progression, however, is only true for a certain time; thus 19% on 200,000 p.st. is more than 20 on 100,000 p.st.; again 18% on 300,000 p.st, is more than 19% on 200,000 p.st.; but after capital has accumulated to a large amount, and profits have fallen, the further accumulation diminishes the aggregate of profits. Thus, suppose the accumulation should be 1,000,000 p.st., and the profits 7%, the whole amount of profits will be 70,000 p.st.; now if an addition of 100,000 p.st. capital be made to the million, and profits should fall to 6%, 66,000 p.st. or a diminution of 4,000 p.st. will be received by the owners of the stock, although the whole amount of stock will be increased from 1,000,000 p.st. to 1,100,000 p.st,”—Ricardo, Political Economy, chapter VII (in Works, McCulloch Edition, 1852, page 68).—The fact is, that the assumption has here been made that the capital increases from 1,000,000 to 1,100,000, that is, by 10%, while the rate of profit falls from 7 to 6%, or 14 2/7%. Hence those tears!

Part III, Chapter XIV.

Categories: Karl Marx