Chapter 6 : 
Accumulation and the Falling Rate of Profit
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Author : Paul Mattick

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Marx was not particularly interested in demonstrating the viability of
anarchic capitalism. His concern with the law of value relates to his
“ultimate aim to lay bare the economic laws of motion of modern
society.”[1] The
best points in Capital, Marx wrote to Engels, “are 1) the
twofold character of labor, according to whether it is expressed in
use-value or exchange-value (all understanding of the facts depends upon this);
and, 2) the treatment of surplus-value independently of its particular forms of
profit, interest, groundrent, etc.”[2] The twofold character of labor-power is, of course,
the equivalent of the social relations of capital production as a production of
surplus-value. And the independent treatment of surplus-value points to this
basic social relationship, which lies hidden behind the various categories in
which surplus-value is split up among its various appropriators.

Capitalist production is production of exchange-value by way of production
of commodities. Its goal is surplus-value as additional exchange-value.
Surplus-value is the difference between the exchange-value of labor power and
its actual productive capacity. It is the time relation between the labor
necessary to sustain and re produce the workers and the labor that falls to the
capitalists in the form of surplus-products, later realized in profits. From
the standpoint of the labor theory of value, the exchange-value of a commodity
decreases with the increasing productivity of labor. More use-value in
commodity form finds its expression in the same or less exchange-value as the
socially necessary labor-time incorporated in them declines.

The development of the social productivity of labor in capitalism expresses
itself on the one hand in the decrease of exchange-value relative to the
use-value of commodities, and on the other hand in an increase of the mass of
use-values which compensates for the declining exchange-value. Viewed
capitalistically, a mere increase in productivity is senseless unless it
involves an increase of surplus-value in terms of exchange-value. This requires
an increase in the rate of exploitation, in the “rate of
surplus-value,” which, in turn, involves a change in the relation between
necessary and surplus-labor time. It can be accomplished either by lengthening
the total working time or by shortening the work period required to cover the
exchange-value of labor-power. One can assume, however, that capital expansion
in a closed system will reach a point where the number of workers cannot be
increased, where the working time cannot be prolonged, and where that part of
the labor-time during which the workers produce their own means of existence
cannot be any further shortened. At such a point capital accumulation would
come to an end.

The increases of productivity, of surplus-value, and of the accumulation of
capital are all one and the same process. They all imply that capital invested
in the means of production grows faster than that invested in labor power. In
Capital, Marx constructs a value-model of capital development in
terms of the conceptual entity “total capital,” with its social
aggregates of wages, profits, and investments. Although all directly
discernible connections between value and price are lost in the actual exchange
process, a consideration of “society as a whole” shows that all
prices together – regardless of their relations to each other –
represent total value. This allows for a value analysis of capital development.
The concept, “society as a whole,” like the value concept itself,
is justified not only as a necessary theoretical device but s a valid
abstraction from reality.

In general, social development is based on the growing productive power of
social labor. Increasing the productivity of labor means that more can be
produced in less time. This is accomplished through the development of means
and methods of production or, under capitalist conditions, by the accumulation
of capital. The growth of capital changes its organic composition. To give
Marx’s own definition of the term, “the composition of capital is
to be understood in a twofold sense. On the side of value, it is determined by
the proportion in which it is divided into constant capital or the value of the
means of production, and variable capital or value of labor-power, the sum
total of wages. On the side of material, as it functions in the process of
production, all capital is divided into means of production and living
labor-power. This latter composition is determined by the relations between the
mass of the means of production employed, on the one hand, and the mass of
labor necessary for their employment on the other. I call the former the
value-composition, the latter the technical composition of
capital. Between the two, there is a strict correlation. To express this, I
call the value-composition of capital, in so far as it is determined by its
technical composition and mirrors the changes of the latter, the organic
composition of capital.”[3]

It follows from this definitions that there is a difference between the rise
of the value composition of capital and the rise of its material-technical
composition. For instance, “if the capital-value employed ... in spinning
is 7/8 constant and 1/8 variable, whilst at the beginning of the 18th century
it was 1/2 constant and 1/2 variable ... the mass of raw material, instruments
of labor, etc., that a certain quantity of spinning labor consumes productively
today is many hundred times greater than at the beginning of the 18th century.
The reason is simply that, with the increasing productivity of labor, not only
does the mass of the means of production consumed by it increase, but their
value compared with their mass diminishes. Their value therefore rises
absolutely, but not in proportion to their mass. The increase of the difference
between constant and variable capital is, therefore, much less than that of the
difference between the mass of the means of production into which the constant,
and the mass of the labor power into which the variable, capital is converted.
The former difference increases with the latter, but in a smaller
degree.”[4]

The organic composition of capital reflects this particular relationship
between value and material composition. The gradual change in the organic
composition of capital occurs more or less in all spheres and branches of
production. The average of individual compositions yields the composition of
the total capital in any particular branch of production, and the average of
the aver ages in all branches of production yields the composition of the total
social capital. It is with this final average that Marx is concerned when he
deals with the general law of capital accumulation.

To repeat: the rise of the organic composition of capital implies that the
mass of the means of productions and production itself, rise faster than the
value composition of capital; which follows, by the law of value, from the
decrease of exchange-value caused by the increasing productivity of labor. By
assuming a constant rate of surplus-value the rising organic composition of
capital leads to a gradual fall of the rate of profit, since it is only the
variable part of capital which yields surplus-value while the rate of profit is
“measured” on total investments, i.e. constant and variable
combined.

The tendency of the rate of profit to fall is compensated through the
increasing productivity of labor which results from the higher organic
composition of capital. Capital accumulation, according to Marx, expresses
itself “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 profits is accompanied by an absolute in
crease of both. This twofold effect can express itself only in the growth of
the total capital at a ratio more rapid than that expressed in the fall of the
rate of profit.”[5]

Capital may accumulate and maintain a given rate of profit when the value of
the variable capital and the value of the constant capital grow at the same
pace. This would, however, imply capital formation without an increase in the
productivity of labor, which contradicts the real development of capitalism,
particularly its vast technological advancement. The absence of capital
accumulation may not cause a fall in the rate of profit. But a non-accumulating
capitalism is only a temporary possibility; it is a capitalism in crisis. For
capitalist production is conceivable only in terms of accumulation. Generally,
capital formation always displaces labor and to that extent reduces the rate of
profit while simultaneously increasing both the rate and the mass of
surplus-value.

As long as the rate of surplus-value can be sufficiently increased, the
tendency for the rate of profit to fall is only latent. To
“demonstrate” a declining rate of profit one may assume a
stationary rate of surplus-value in an otherwise expanding capitalist system.
But a situation in which exploitation cannot be increased enough to offset the
tendential fall of the rate of profit is not foreseeable. Marx himself pointed
out that the abstract scheme of capital development was not enough to provide
any predictions about the actual world. All crises in capitalism must be
explained out of the given empirical conditions, “out of the real
movement of capitalist production, competition, and credit.”[6] The value analysis of
capital development postulates “the possibility of crises by a mere
consideration of the general nature of capital, without regard to the
additional and real relations that form the conditions of the real production
process.”[7]

Nevertheless, the law of the falling rate of profit was for Marx, “the
most important law of political economy.”[8] Simple though “the law of the falling rate of
profit” appears to be, the classical economists had “tried in vain
to discover it.”[9] They had not succeeded because they had been
“tinkering with the distinction between constant and variable capital
without ever defining it accurately”[10] Ricardo, for instance, “equated profit with
surplus value,”[11] but he did not observe its relation to total
capital. Thus he failed to recognize the falling rate of profit as an
immanent law of capital accumulation. Although incapable of predicting
the end of capitalism in any specific sense, the recognition of the falling
rate of profit as the immanent law of capital expansion destroyed the illusion
that capitalism could ever reach the state of tranquility its apologists held
out as the hope of the future. It implies that all the concrete contradictions
encountered in reality cannot be considered accidental or remediable
shortcomings. These difficulties, singly and as a developmental pattern, are
due to a trend inherent in capital production itself. When capitalism’s
inner connections are grasped, Marx wrote, “all theoretical belief in the
permanent necessity of existing conditions breaks down before their practical
collapse.”[12]

In its early stages, capital formation seemed to be merely a quantitative
increase in capital. Through the rising organic composition of capital, it
became a qualitative change. Newly-added capital attracts fewer and fewer
laborers in proportion to its magnitude, and the reproduced capital, which
partakes of the changing capital composition, repels more and more of the
laborers formerly employed by it. Still, accumulation implies an increase in
the laboring population, since part of the surplus-value must be re-transformed
into additional variable capital. To do this requires an accelerated
rate of capital expansion. According to Marx, “it is not merely that an
accelerated accumulation of total capital, accelerated in constantly growing
progression, is needed to absorb an additional number of workers, or even, on
account of the constant metamorphosis of old capital, to keep employed those
already functioning. In its turn, this increasing accumulation and
centralization becomes a source of new changes in the composition of capital,
of a more accelerated diminution of its variable, as compared with its constant
constituent.”[13]

However, the extension of capital production brings new capital of low
organic composition into the market economy. Thus the relative decline of the
variable capital is mitigated by its absolute growth. Technological development
reduces the capital-value of the means of production and thereby slows up the
growing discrepancy between constant and variable capital. The tendency of the
rate of profit to fall is compensated for by these and other
“counter-tendencies.” The question is, however, whether this is
always possible.

As previously noted, there are two ways of increasing the rate of
surplus-value for a given capital: lengthening the working-day, or shortening
that part of the working-day during which the workers produce the equivalent of
their exchange-value. This holds true also for the imaginary “society as
a whole,” i.e. the world “treated as one nation in which capitalist
production prevails everywhere, in order to examine the object of our
investigation in its integrity, free from all disturbing subsidiary
circumstances.”[14] In this model of capital production the rate of
surplus-value may be increased, by increasing the total labor-time or by
decreasing that part of the total labor-time which is the equivalent of
variable capital. But there are definite limits beyond which the absolute
labor-time cannot be extended and the necessary labor-time (the labor-time
falling to the workers) cannot be reduced. This is as true for the total mass
of social labor as it is for the individual worker. However, the limits which
apply in the case of the individual worker are observable, while those which
limit “society as a whole,” or any existing society, are not. To
speak in extremes: the absolute working-time during any one day cannot exceed
24 hours, and the necessary labor-time cannot be reduced to zero. The
extraction of surplus-value has both natural and social boundaries.

The tendency of the rate of profit to fall is a theoretical conclusion
derived by applying the labor theory of value to the capital formation process.
As a result of the increasing productivity of labor, we will recall, the value
of commodities declines with the reduction of the labor-time required for their
production. But more commodities are now produced during the time previously
needed for fewer of them. Spread over a greater mass of use-values,
exchange-value is also enlarged, though to a lesser degree, and capital
accumulates. A similar process affects the profitability of capital. Although
the rate of profit declines with the rising organic composition of capital, the
mass of surplus-value increases with the mass of the accumulated capital. For
any definite amount of capital the rate of profit will be lower. But
since the total mass of capital is larger, there is more surplus-value; and
capital realizes the same, or even a higher, profitability. In Marx’s
words, 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.”[15] This is so, because
“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 the individual capitalists, ... varies
inversely with the decrease of its variable portion.”[16] Despite the fall in
the rate of profit, “there may be an absolute increase of the number of
laborers employed by capital ... an absolute increase of the mass of
surplus-value absorbed, 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.”[17]

The development of the social productivity of labor implies an increased
production of use-values, including the means of production, and consequently
requires additional labor. This labor depends not on “the value, but on
the mass of these means of production (including the means of subsistence)
because the laborer in the production process is not operating with the
exchange-value, but with the use-value of the means of production.”[18] Accumulation is
therefore “accompanied by a growth of the mass of the available and
appropriated surplus-labor, and consequently by a growth of the absolute mass
of profit appropriated by the social capital.”[19] All that is necessary is that
“the multiplier indicating the growth of the total capital must be equal
to the divisor indicating the fall of the rate of profit.”[20] In other words,
“capital must grow at a faster rate than the rate of profit falls ... 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.”[21] Thus the accumulation process itself nullifies the
fall of the rate of profit. If the accumulation is large enough, the greater
mass of capital of a higher organic composition will yield the same or a
greater profit than that brought forth by a smaller total capital of lower
organic composition.

Seen in the light of the labor theory of value, accumulation in terms of
exchange-value is held in check by the falling rate of profits while the
simultaneous growth of use-value, in the form of additional capital, increases
the mass of profit and therewith in creases the actual profitability of
capital. Nevertheless, accumulation, according to Marx, is characterized by:
“First, the increase of surplus-labor, that is, the reduction of the
necessary labor time required for the reproduction of labor-power; secondly,
the decrease of the labor-power (the number of workers) employed in general for
the purpose of setting in motion a given capital.”[22] These occurrences are mutually
conditioned by one another and affect the rate of profit in opposite ways.
While the rate of surplus-value rises in one direction, the number of laborers
falls in the opposite direction. “To the extent that the development of
the productive powers reduces the paid portion of the employed labor, it raises
the surplus-value by raising its rate; but to the extent that it reduces the
total mass of labor employed by a certain capital, it reduces the factor of
numbers with which the rate of surplus-value is multiplied in order to
calculate its mass. Two laborers each working 12 hours daily, cannot produce
the same mass of surplus-value as 24 laborers each working only 2 hours, even
if they could live on air and did not have to work for themselves at
all.”[23]

Because “the relation between wage labor and capital determines the
entire character of the capitalist mode of production,”[24] the fall of the rate
of profit can be checked by accumulation but can not be entirely prevented. The
compensation for the relative reduction in the number of workers by means of an
intensified exploitation cannot go on “forever” but must eventually
find its absolute limit in the increasingly greater mass of the reproducible
capital and its expansion requirements. Whatever the mass of labor-power in the
real capitalist world, in relation to the progressively faster growing constant
capital, it must become a relatively diminishing quantity of
surplus-value-producing labor-power.

Carried to its “logical end,” a continuously accelerating
capital expansion will change the relative decline of the rate of profit into
an absolute decline because of a lack of surplus-value with respect to the
swollen mass of capital. When this happens, reality will correspond to
Marx’s model of capital expansion.

1. Capital, Vol. I, p. 14.

2. Marx-Engels, Selected Correspondence, p. 232

3. Capital, Vol. I, p. 67.

4. Ibid., p. 683

5. Capital, Vol. III, p. 261.

6. K. Marx, Theorien über den Mehrwert, Stuttgart, 1905, Vol. II, p. 286.

7. Ibid., p. 264.

8. K. Marx, Grundrisse, p. 634

9. Capital, Vol. III, p. 249.

10. Ibid.

11. Grundrisse, p. 639.

12. K. Marx, Letters to Dr. Kugelmann, Moscow, 1934, p. 74.

13. Capital, Vol. I, p. 691.

14. Ibid p. 6

15. Capital, Vol. Ill, p. 259.

16. Ibid., p.259.

17. Ibid., p.255.

18. Ibid., p.256.

19. Ibid.

20. Ibid, p.260.

21. Ibid., p.261.

22. Ibid, p. 289.

23. Ibid, p. 290.

24. Ibid, p. 1025.


     From : Marxists.org

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     Chapter 6 -- Added : March 02, 2021

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