F.E.D. Dialectics: A KEY, NEGLECTED PASSAGE by Marx on the, critical, Profit-Rate Formula.

KEY,

NEGLECTED

PASSAGE

by Marx

on the,

critical,

Profit-Rate

Formula.

Dear Reader,

In volume three of Marx’s treatise Capital: A Critique of Political Economy, in its part three, “The Law of the Tendency of the Rate of Profit to Fall”, in its Chapter XIII, “THE LAW AS SUCH”, near the end of that chapter [p. 229 in the 1967 New World edition], resides a key paragraph whose opening sentence marks a major ‘de-abstraction’ – a major advance in the realism and ‘thought-concreteness’ – of Marx’s model of the rate of profit return on industrial capital invested. To our knowledge, this crucial passage has been completely neglected in the Marxian literature on Marx’s “The Law of the Tendency of the Rate of Profit to Fall” to-date.

That opening sentence – which opens up, for us, a new, trans-algebraic understanding of the mechanism of the “Law of the Tendency of the Rate of Profit to Fall” – is as follows:

“The rate of profit must be calculated by measuring the mass of produced and realized surplus-value not only in relation to the consumed portion of capital, reappearing in the commodities [M.D.: (c + v)], but also to this part plus that portion of unconsumed but applied capital which continues to operate in production [M.D.: i.e., “fixed capital” machinery, plant and equipment, not yet depreciated by “wear and tear”; f].”

[Italics emphasis per source; underscored bold italics emphasis added by M.D.].

Thus, Marx’s profit-rate formula, in this latest step towards “the surface of society”, in its deepening of the ‘thought-concreteness’ and realism; in its further ‘de-abstraction’/‘de-simplification’, in the flow of Marx’s subtle systematic-dialectical method of presentation, becomes –

s’_t / (f_t + c_t + v_t)

– wherein, for annual production “cycle”/whorl number t –

s’_t = net surplus-value, net of interest payments, rent payments, etc.;

f_t = fixed capital value applied in annual production period t;

c_t = constant capital value invested in annual production period t;

= (c_d_,_t + c_r_,_t + c_a_,_t);

v_t = variable capital value [wages] invested in year t;

c_d_,_t = depreciation by “wear-and-tear” consumption of fixed capital,

during annual production year period t;

c_r_,_t = raw materials capital-value invested during period t;

c_a_,_t = auxiliary materials capital-value invested during period t.

Note: Putting this profit-rate formula on the annual production period “cycle”/whorl [“whorl” because capitalist production is a non-repeating iteration; not a circle or cycle, in detail, but a ‘qualo-quantitative’, helical spiral, with both quantitative changes/-expansions and qualitative/ontic changes/expansions encompassed within each annual production period] basis averts problems of combining value-“stocks” with value-“flows”.

All value components invested/applied in each year’s “productive capital” must count equally as portions of the capital invested to produce the year’s commodity-capital-value output.

Marx’s profit-rate ratio is a kind of “input-output ratio” or ‘capital-value amplification factor”.

It is, as s/(c + v), a gross Output over [‘/’] Input ratio: O/I.

As s’/(c + v), it is a net output over input ratio:

(O – I)/I.

It is based upon the causal relation between the input and the output. That is, the capital-value invested, now (f + c + v), measures, in value-terms, the cause of the net-profit effect, s’, measuring the effect relative to its cause – measuring the profits-producing power of that input/cause; its ‘profits-productivity’.

This value-cause includes the value of the fixed-capital machinery/plant and equipment “applied” [Marx] in, to and during the time-period, t, of the value-effect’s production, i.e., including all of the not-yet-consumed, not-yet-“wear-and-tear”-depreciated portion of the value of that, applied, fixed-capital machinery/plant and equipment, because it too, f_t, is part of the cause of the s’_t effect.

Implicitly, the ‘de-abstractive’, ‘de-over-simplifying’ progression from –

s’_t / (c_t + v_t)

s’_t / (f_t + c_t + v_t)

– opens the way to consider the effect of what Marx called the ongoing “moral depreciation” of fixed capital – technological obsolescence depreciation of fixed capital, or ‘techno-depreciation’ for short – which is caused, not by the, “wear-and-tear”, partial consumption of that fixed capital in each production period, but by the growth of the social forces of production, enforced when that growth is embodied in productivity-improved plant and equipment/-machinery, and applied, in their production, by other, competing individual capitals.

To remain competitive/viable, the individual capitals still employing the ‘obsoleted’ fixed capital must partially or wholly scrap that obsoleted fixed capital – the loans by which that ‘obsoleted’ fixed capital was originally purchased usually not yet being fully paid-off at the time of their enforced obsolescence/-scrapping – and take out new loans to purchase the more technologically-advanced, fixed capital to replace the scrapped fixed capital, so as to render their individual industrial capitals once again competent/competitive.

This means that the capital-value loss on the ‘obsoleted’ fixed capital must be subtracted from both the numerator and the denominator of the, now further enhanced, profit-rate ratio, and the old annual sum of debt service [interest + principal] payments on the old and the new fixed-capital loans subtracted from the numerator of this, enhanced, net-profit-rate ratio.

That more-realistic, even-more ‘thought-concrete’ profit-rate ratio thus becomes –

(s’_t - f_o_,_t - L_f_,_t - DL_f_,_t)/ (f_t + c_t + v_t - f_o_,_t)

– wherein –

f_o_,_t = remaining, undepreciated value of period t obsoleted fixed capital;

L_f_,_t = period t Loan debt-service still due on obsoleted fixed capital;

DL_f_,_t = period t new Loan-service due on replacement fixed capital.

But Marx himself did not fully take this next step, leaving the explanation for the profit-rate fall, “algebraically”, to the relative fall of v – relative to c, albeit both increasing in absolute terms – resulting in a relative fall of s, without locating where the resulting relative dearth of s registers and manifests empirically. It manifests – the growth of the social forces of production, the growth of ‘use-value productivity’ manifests – in losses and write-offs to the capital-value of productivity-growth-‘obsoleted’ fixed capital.

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