The General Rate of Profit
Capital Volume 3, Part 2, Conversion of Profit into
Average Profit
The
source of increase under capitalism is surplus value. This is the truth that is
revealed in exhaustive detail in Capital, Volume 1, and it is not going to be
contradicted here in Volume 3.
But
what is called “profit” is not the increase as a whole, but the increase less
the other costs of production.
Marx’s
definition of the rate of profit is “the
ratio of surplus labour (s) to necessary labour plus the value of components and
materials used in production (v + c) – the capitalist’s costs of production.”
Labour
power is paid for at cost, but yields more labour than is required to reproduce
labour-power.
All
other inputs such as materials, equipment and general overhead expenses are
inert costs that have no regenerative power. They are simply consumed in
production and their cost is passed on directly to form part of the commodity
price of the resultant product.
Only
labour can produce surplus value. All other inputs, even if their cost is
passed on in full into the selling-price, go to reduce the overall rate of profit.
When labour and the corresponding surplus-value it produces become a smaller
proportion of the whole, the rate of profit on the whole outlay is less.
It
follows that the only way that profit can be made is by the employment of
people. This is in turn is why the threat of employers to employ machinery
instead of people is hollow. To make more money, the capitalist must generally employ
more people.
The jargon
used today is “labour-intensive” versus “capital-intensive”. In a
capital-intensive business, the costs of other inputs are higher in proportion
to the labour-power employed, and the rate of profit is consequently lower.
This
is shown in the table given at the beginning of the well-known Chapter 9 of
Volume 3 (download linked below).
This
chapter is full of quite simple examples, interspersed with categorical general
statements. It is readable to people with a business background.
In
general, the chapter is about the development of the overall “economy” out of
its individual-capitalist parts, so that we now enter the world of “financial markets”,
with an idea of what comes through from the basic relationships and what begins
to feed back from the overall (social) level so as to affect individual enterprises.
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