Marx's falling rate of profit. help.

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One More Drone's picture
One More Drone
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Aug 24 2009 02:19
Marx's falling rate of profit. help.

I'm really struggling with understanding this, i was wondering if anyone here had a good understanding and could help. The description I have says this

"The law of the falling rate of profit holds that as capitalists try to gain a competitive advantage by investing in new labour saving and productive technologies unemployment increases and the rate of profit decreases. Surplus value (or profit) can only come from living labour and not machines and because production is increasingly based on less labour, even with very high rates of exploitations of those still working, the rate of profit tends to fail"

The bit that doesnt make sense to me is why profit can only come from living labour, surely if i have a machine that for a one off cost can produce everything the worker could with out having to pay it wages then why it should be producing at least the same profits the worker was? is this related to the fact that by laying off the worker there is now one less consumer?

anyone that can clarify.

sorry if i've not been very clear with my problem.

RedHughs
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Aug 24 2009 07:10

There are many debates around this general question. I'll try to shy away from the more contentious points to begin with....

Quote:
The bit that doesnt make sense to me is why profit can only come from living labour, surely if i have a machine that for a one off cost can produce everything the worker could with out having to pay it wages then why it should be producing at least the same profits the worker was? is this related to the fact that by laying off the worker there is now one less consumer?

Actually, this is a good place to show how the rate of profit falls. Remember, we aren't interest in one-off conditions in single factory. Rather, we're concerned with the average production processes that prevail in a given society. So, if in a given industry, you have production done mostly or entirely by machine, the capitalists will run their machine till they wear out and then buy new machines, which have to be made with more labor power. The amount of labor power in the final product will thus be a small fraction of the labor power required to produce the machine plus the amount of labor power required to run the machine. The price of the final output will fall accordingly, if the machines are extremely productive. But further, notice that the profits in the industry now have to be divided between the machine-using capitalists and the machine making capitalists.

Notice, for example, how chip manufacturers sometime have trouble making profits even though many of the manufacturing processes have become extremely automated.

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pingtiao
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Aug 24 2009 18:42

I think that it is instructive here to follow it through in your head.

Take a given market- say jeans.
At first, all the companies make these jeans using a large amount of human labour, and thus all the jeans get priced around some social average amount (some companies will charge more, some companies less).

One company then introduces a machine that makes the jeans using a lot less labour. This company, ignoring the capital outlay n the machinery, will now have a much higher profit rate than the others. This will attract capital, as capital is always on the lookout for higher rates of profit.

The result will be a generalisation of this new mode of production: the machine will get used by all the other companies, as it is a more efficient way of producing the jeans.

The consequence is that the price of the jeans will fall, as there is a much greater margin within which each market actor can undercut his fellows. A new price-point will become generalised, and the companies will sell their products around this.

dave c
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Aug 24 2009 21:42

If I understand your question correctly, you are not really asking about Marx's falling rate of profit specifically. You ask why profit can only come from living labor when replacing a worker with new machinery doesn't in reality lower a capitalist's profit. The relevant distinction in Marx is between value and price. Profits are not measured in value terms, but for Marx living labor is the sole source of profit on a social scale, that is, the total mass of profit of all the capitalists. For Marx total profit=total surplus value, and total value=total price. But for individual capitals, value and price diverge, and herein lies the dynamic movement of the capitalist economy. The individual capitalist using more machinery can capture a greater share of the total surplus-value produced, and thus raise his/her profits, without thereby making the total mass of profits any greater. It does not have anything to do with there being one less consumer. I don't know how much Marx you have read, but in order to really assess his theory of the falling rate of profit, you will have to read about it from the original source.

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oisleep
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Aug 24 2009 21:58

i think both the replies above have missed the crux of the OP's confusion/problem, as it seems to me that the question isn't really anything to do with the falling rate of profit per se but is a more fundamental question about surplus value and the labour theory of value itself, i.e.

Quote:
The bit that doesnt make sense to me is why profit can only come from living labour

the tendency for the rate of profit to fall theory only holds true if you maintain a labour theory of value in the first place - for example the most well known 'refutation' of the falling profit theory by the Okishio theorem 'proves' that the profit rate rises with increased productivity by adopting a simultaniest approach to valuation of input and output which ultimately ends up with what's known as physicalist conclusions - where physical output (and not social labour) ultimately determines value and profit, making a labour theory of value redundant

so the question really goes back to the labour theory of value - in simplistic terms when two commodities are exchanged, this act of exchange abstracts from their qualitative differences as use-values created by distinct acts of concrete labor and a commonality/homogeneity is found between the two different commodities based on the amount of social labour required to reproduce them and thus the value of the commodity, based on social labour, is derived. the value, expressed in price, of that commodity can be split into two parts the cost price - being the element that the capitalist has paid (in the market and at their value) in producing the commodity (constant and variable capital) and surplus value being the element that the capitalist gets for nothing, and thus the profit (note that this is a very basic/crude volume I description and ignores a whole heap of development which comes in volume III in relation to averaging of profit/prices of production/distribution of surplus value distinct from its production etc..)

profit itself, at a societal level, can't come from dead/past labour as the surplus value created by that labour has already been 'embodied' within commodities and realised/distributed on the market, these are then either i) individually or productively consumed by their purchaser which in the case of individual consumption they drop out of value circulation and in the case of productive consumption their value is merely transfered into another product in production either in one go or gradually over time or ii) bought and sold again in the market the buying/selling of them involves (at a societal level) an exchange of equal values with no possibility for the expansion of that value and profit - so even though dead labour continues to circulate as value, it doesn't have the capacity, at societal level, to self expand in itself and create profit

as in the replies above if a company buys a new machine that allows them to produce a commodity at a cost below the social average, they are able to make an ephemeral/temporary additional profit by selling the commodities produced by it at the social average but producing below it - eventually however through competition everyone adopts the enhanced technology (or goes out of business) which brings the social average cost of production down for the industry as a whole (and in turn through movement of capital leads to an averaging of profit across as well as within sectors) as more, or the same, is produced but with less labour - on one hand the scope for profit is reduced as less labour overall is involved, however on the other hand the scope for profit is increased as a bigger share of the value created by labour is captured as surplus value (as increasing productivity in society overall reduces the cost of labour power and therefore increases the scope for surplus value extraction in production) - again all this assumes a labour theory of value to hold true

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Aug 24 2009 22:00

i posted my comment above without seeing your post dave, so wasn't referring to you when i said the posts above

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Aug 25 2009 13:41

Yes, like others have said this is really two different points.

The important thing to note on human labour is that even with the new machines you mention, human labour is still required, in order to build them in the first place, and then to operate and maintain them.

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Aug 26 2009 12:24

also bear in mind that at the societal level although the rate of profit tends to fall as productivity increases (putting aside the negating impacts of the various counteracting influences and crisis for the time being), this is accompanied by an increase in the actual mass of profit, so overall more living labour, not less, is engaged in the production of value - it's just that the rise in proportion of living labour (the source of surplus value/profit) doesn't keep pace with the rise in proportion of dead labour/constant capital - leading to a situation where the increase in surplus value generated fails to keep pace with the expansion of capital looking to capture a share of it

also the concept of falling rate of profit theory isn't something that marx came up with, it was fairly common with smith, ricardo, mill etc.. all subscribing to a form of it - the big difference being that most others saw a pretty much constant gradual declining profit rate over time (which marx didn't) and ricardo etc.. attributed it to factors outwith of capitalism (malthus like things to do with resources) - the big difference with marx was his focus was on dynamics internal to capital that caused it and also as to why a much more observable fall in the rate of profit couldn't be seen - which lead on to his investigation of the various counteracting influences (hence the name tendency of rate of profit to fall) and also investigation into the contradictions, antagonisms and ultimately crisis and devaluation/destruction of capital that takes place as the process unfolds and tries to re-equilibrate itself- a good quote from that section is - the real barrier of capitalist production is capital itself

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Aug 27 2009 06:55

Thanks, you've all been really helpful, I suspect I will have to spend much more time and energies in understanding Marx grin

thanks all.

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Jun 26 2010 09:25

I know that in the David Harvey lectures (http://davidharvey.org/reading-capital/) he goes into quite a bit of detail surrounding this. I can't remember which lecture it's actually in, but I would imagine it corresponds to whichever chapter (in Vol. 1) first brings up TFRP.

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Jun 26 2010 14:12

Marx deals with the falling rate of profit in Vol. 3. As far as I remember Harvey does not into any detail in his lectures.

Dr. Whom
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Feb 19 2011 20:24

Theory Forum Participants,

Dear "One More Done",

A problem with much of the Capital, volume III exposition of Marx's "Law of the Tendency of the Rate of Profit to Fall", is that this "Law" is there traced via the innermost logic of the Marxian "Law of Value", still abstracted from the mediations of the many-capitals competition process, which enforces this "Law of Value", so that the appearance of the processes enforcing the Profit-Fall-Tendency "Law" on "the [outermost] surface of society" are not fully explicated.

Consequently, this "law" often appears to be merely an abstract, algebraic law, e.g., given that the Marxian Rate of Profit is expressed as net surplus-value [S'] divided by the sum of the constant capital-value [C] and the variable capital-value [V] invested to produce that net surplus-value return, then, multiplying that profit-rate ratio by 1 in the form of [1/V], divided by itself, yields an expression which falls in overall magnitude if the "organic composition of capital" and "technical composition of capital" [C/V] rises, IF the rate of surplus-value ratio [S'/V] does not also rise sufficiently --

( S' / ( C + V) ) x ( (1/V) / (1/V) )

=

(S'/V) / ( (C/V) + (V/V) )

=

(S'/V) / ( (C/V) + 1 )

-- which is open to critique based upon some of the countervailing tendencies to the "Law", which Marx enumerates there, such as the impact of "capital-saving" technological innovations, and the rising productive force / productivity of the production of raw material production and machinery production themselves, which reduces their labor-value, thus reducing C.

It is open, as well, to the critique that the very reason why capitalists work [though not, of course, consciously per these terms] to increase C is to increase relative surplus value -- i.e., to increase the rate of labor-exploitation, S'/V -- the numerator of the ratio above, which, if it rises sufficiently, could cause the Marxian rate of profit ratio above to rise in value overall, even with rising C/V.

Now, of course, there are limits on the rise of the rate of relative surplus value rates, S'/V, while there are no direct intrinsic limits to the rise of C/V.

That is, not even the whole working-day's labor-time value-product, let alone anything larger, can accrue to even gross relative surplus value, S.

The worker's produced working day's value is no more than S + V, e.g., 8 hours worth, and V can never fall to zero as long as there are wage workers involved in the direct capital-production / profit-production /commodity-production process.

HOWEVER, there is a newer model -- perhaps implicit in what Marx wrote -- that describes the profit-fall "trendency" as it appears on the "surface of society".

This newer model of the Marxian law of the tendency of the rate of profit to fall is based upon the "self-duality" of capital as value-in-process, namely --

capital as self-expanding value # capital as self-contracting value

-- using the doubly-negated equality sign as a sign for dialectical contradiction.

The balance of predominance of these two processes shifts, from the Left-Hand-Side to the Right-Hand-Side, as capital accumulates in its immanent, lawful way, with the physical mass of fixed capital "trendentially" ever-increasing relative to the physical mass of circulating capital, dricing the transition from the ascendant phase of the capitalist system, to its "descendant "phase.

The 'self-contracting value' aspect of capital arises through the pursuit of relative surplus-value profit-advantages, which motivates capitalists to grow the social forces of production.

The growth of the social forces of production under capitalism has the effect of "moral depreciation" [Marx] of surpassed vintages of fixed capital -- "techno-depreciating" previously accumulated fixed capital plant and equipment -- technologically, competitively obsolete machinery, etc. -- which then has to be "written-off" the books of the individual capitals which own it, as a loss contribution, reducing their net profit, or, later, once the ruling class manages to dis-connect monetary expansion from production and productivity [e.g., production of precious metals], via fractional reserve / fiat money creation Central Banking Systems, through long-term hyperbolic inflation.

Some sources on this theory of the causation of profit-rate fall / continual inflation tendency include --

http://oregonstate.edu/cla/polisci/faculty-research/sahr/pl1665.htm

http://www1.fee.uva.nl/pp/bin/642fulltext.pdf

http://www.adventures-in-dialectics.org/Adventures-In-Dialectics/TechnoDepreciation/TechnoDepreciation-partA.pdf

http://www.adventures-in-dialectics.org/Adventures-In-Dialectics/TechnoDepreciation/TechnoDepreciation-partB.pdf

http://www.equitism.org/Equitism/MaladyAndRemedy/MaladyAndRemedy.htm

Regards,

Dr. Whom?