Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 2

In this post, I examine two questions: One is whether Heinrich’s critique of Marx’s theory of the tendency of the rate of profit to fall—TRPF—is valid. After that, I will examine Heinrich’s claim that Marx had actually abandoned, or was moving toward abandoning, his theory of the TRPF.

The determination of the rate of profit

If we assume the turnover period of variable capital is given and assume no realization difficulties—all commodities that are produced are sold at their prices of production—the rate of profit will depend on two variables. One is the rate of surplus value—the ratio of unpaid to paid labor. This can be represented algebraically by the expression s/v. The other variable is the ratio of constant to variable capital, or c/v—what Marx called the composition of capital.

Composition of capital versus organic composition of capital

The composition of capital will change if wages, measured in terms of values—quantities of abstract labor measured in some unit of time—changes. For example, if wages fall in terms of value, everything else remaining unchanged, there will be relatively more constant capital and less variable capital than before. The composition of capital c/v will have risen.

However, though less variable capital relative to constant capital will have been used than before, a given quantity of variable capital will now produce more surplus value. All else remaining equal, a rise in the composition of capital produced by a fall in the value of the variable capital will result in a rise in the rate of profit.

Suppose, however, that the capitalists replace some of their variable capital—workers—with machines. Remember, we are measuring the machines here in terms only of their value. Here, in contrast to the first case, we assume the value of variable capital and the rate of surplus value s/v remains unchanged.

Now, more of the total productive capital will consist of constant capital, which produces no surplus value, and less will consist of variable capital, which does produce surplus value. Since here, unlike in the first example, the rate of surplus value has remained unchanged, the fall in the portion of the capital that produces surplus value will produce a fall in the rate of profit.

In order to differentiate between these two very different cases, which produce opposite effects on the rate of profit, Marx called a rise in the composition of capital produced by a rise in the use of machinery a rise in the organic composition of capital.

Capitalist competition forces the individual industrial capitalists to do all they can to lower the cost price of the commodities they produce. The term cost price refers the cost to the industrial capitalist of producing a given commodity, not the cost to society of producing it. (1) The cost price represents the amount of (abstract) labor that the industrial capitalists actually pay for. It is in the interest of the industrial capitalists to reduce as much as possible the amount of labor that they pay for while increasing as much as possible the amount of the labor that the industrial capitalists do not pay for—surplus value.

The cost price of the commodity is, therefore, the capital—constant plus variable—that industrial capitalists must productively consume to produce a given commodity of a given use value and quality.

As capitalism develops, the amount of capital that is used to produce a given commodity of a given use value and quality progressively declines. But capitalist production is a process of the accumulation of capital. Leaving aside temporary crises, the quantity of capital defined in terms of value must progressively increase over the life span of the capitalist mode of production.

Therefore, the fall in the capital used to produce the individual commodities must be compensated for by a rise in the total quantity of commodities produced if the value of total social capital is to grow. Outside of crises and a war economy, the history of capitalist production sees a continuous rise in the total quantity of commodities produced. This is why the capitalists must find new markets or enlarge old ones if capitalism is to continue. Contrary to Say’s Law, the increase in commodity production does not necessarily equal an increase in markets.

8 Responses to “Michael Heinrich’s ‘New Reading’ of Marx—A Critique, Pt 2”

1. Boffy Says:

“Suppose, however, that the capitalists replace some of their variable capital—workers—with machines. Remember, we are measuring the machines here in terms only of their value. Here, in contrast to the first case, we assume the value of variable capital and the rate of surplus value s/v remains unchanged.

Now, more of the total productive capital will consist of constant capital, which produces no surplus value, and less will consist of variable capital, which does produce surplus value. Since here, unlike in the first example, the rate of surplus value has remained unchanged, the fall in the portion of the capital that produces surplus value will produce a fall in the rate of profit.”

But, the question is whether the assumption that s/v remains constant here is valid. In fact, it is not.

In Volume I of capital discussing the introduction of machinery and effect on relative surplus value Marx makes the point that it increases it in two different ways. Firstly, for any particular firm introducing a new machine it has the effect of turning its workers into the equivalent of “complex labour”. That is one hour of their labour power is the equivalent of several hours of labour for some other firm in the same business. The additional benefit for this particular capital is that its own workers wages will still be paid at the same level so its payment of variable capital remains the same, but the value of its production rises, thereby creating relative surplus value.

This advantage disappears as the machine becomes generalised across the industry. However, at this point, the second form of relative surplus value arises. What the machine then represents is an increase in the general level of productivity. This has an obvious direct effect if the industry is producing wage goods, because those wage goods become cheapened, thereby reducing the value of labour-power, which then causes relative surplus value to rise generally across the economy, causing a rise in the rate of profit.

But, as Marx points out even if this industry is not directly producing wage goods this can still be the case. Suppose the industry is producing steel. But steel goes into machines, into railways and a whole series of other commodities, which thereby become cheapened. To the extent that this constant capital becomes cheaper, and to the extent that this constant capital itself is in turn used in the production of wage goods, then wage goods become indirectly cheapened, thereby reducing the value of labour-power and increasing relative surplus value and the rate of profit.

But, in this case, the rate of profit also rises for the other reason that constant capital is also cheapened. Moreover, its impossible for this increase in productivity to arise without a rise in the rate of turnover of capital.

I’d also make a small point about your earlier point about the rate of turnover. Marx – actually in Volume III its Engels who wrote this entire Chapter – makes the point not that it is the turnover of only the Variable Capital, but that the circulating constant capital turns over at the same rate as the variable capital so the latter can act as a proxy for it. In fact, they both understood that it is the turnover of the entire capital that is significant. It is a point also that Bukharin took up in his “Economics of the Transition Period”, where he demonstrates the problem for economies that tie up too much capital in types of production that have very long turnover periods.

2. Boffy Says:

“Leaving aside temporary crises, the quantity of capital defined in terms of value must progressively increase over the life span of the capitalist mode of production.”

But it does not at all follow that the amount of capital involved in the production of any particular commodity must continually expand. There is almost certainly far less capital employed in producing buggy whips today than there was 100 years ago. There is probably, in Britain today, far less capital employed in coal production than there was just 50 years ago.

By contrast, there is a large amount of capital involved in the production of smart phones than there was 20-25 years ago, but the organic composition of capital involved in this production is less than the average, because the largest advance of capital is for the employment of very high value, complex labour, and thereby acts to bring about a ghigher rate of profit.

3. Boffy Says:

What I find interesting is that in Marx’s main analysis of crises, in Part 2 of Theories of Surplus Value, Marx does not mention the falling rate of profit once as being a cause of crises, let alone the main or only cause. In fact, he says the opposite. He writes in a note,

“A distinction must he made here. When Adam Smith explains the fall in the rate of profit from an over-abundance of capital, an accumulation of capital, he is speaking of a permanent effect and this is wrong. As against this, the transitory over-abundance of capital, over-production and crises are something different. Permanent crises do not exist.”

4. Boffy Says:

“In order to differentiate between these two very different cases, which produce opposite effects on the rate of profit, Marx called a rise in the composition of capital produced by a rise in the use of machinery a rise in the organic composition of capital.”

This is also not quite right. In fact, Marx makes the point that generally the amount of fixed capital will fall relative to the circulating constant capital. One new more efficient machine replaces several less efficient machines. But, the one more efficient machine will process more material than the several less efficient machines.

This means that the Technical composition of capital, i.e. the physical quantities of constant capital relative to the physical amount of labour-power rises, because much more material is processed. It is this technical composition of capital rather than the value composition of capital, Marx says which is decisive, because the expansion of capital is the physical expansion of capital as a social relation, i.e. more labour-employed.

But, the fact that the technical composition expands, does not at all necessarily mean that the organic composition expands, because the rise in productivity that brings it about also reduces the value of the constant capital. Moreover, if similar changes result in the introduction of different materials physically fewer of those materials will also be processed. For example, a modern mobile phone requires far fewer materials than did a 1980′s land line, let alone all of the other devices that a modern mobile phone replaces.

5. allan harris Says:

If the rate of profit is surplus-value/paid labor, what are the values for each from 1929-2012. I would like to try and graph the numbers on an excel chart.

Also, if the rate of profit is also affected by the ratio of constant to variable capital, what exactly is the mathematical relationship between the two factors in the rate of profit? (i.e., what is the relation between s/v and c/v?)

6. allan harris Says:

Assuming that the rate of profit is variable capital divided by constant capital then the following chart is an attempt to depict the fall in the rate of profit from 1929-2012 in the U.S. economy

http://marxisteconomictheory.blogspot.com/2013/08/if-rate-of-profit-is-function-of.html

• Boffy Says:

The rate of profit is not v/c, but s/(c+v) or more properly s x n/C, where s is surplus value in one turnover period multiplied by the number of turnover during a year, and C is the total capital (fixed constant, plus circulating constant, plus variable) advanced for one turnover period.

There is no necessary mathematical relation between, s/v and c/v, though there is a logical one. That is if c/v rises because more better machines are introduced, these will process additional material, so c/v rises. But, s/v is generally determined by the cheapening of wage goods, i.e. less necessary labour-time, and consequently more surplus labour-time. The rise in c/v will generally imply a rise in productivity, and consequent fall in the value of wage goods, but the amount can only be determined in practice.