In general, a falling rate of profit is a result of increased productivity of labour, and is hence a sign of successful accumulation. However, through the process of accumulation capital becomes its own barrier. This is the subject of this chapter.

1. General Considerations

Chapter 15 opens with a reminder that profit rate and rate of surplus-value are not the same. This reminder is motivated by Ricardo’s mistake to identify the two. Under this false identification, it is indeed difficult to explain the empirical phenomenon of a falling rate of profit. The phenomena, however, has consequences for the capitalist mode of production, which gave Ricardo reason to pause:

349:3 A fall in the profit rate, and accelerated accumulation, are simply different expressions of the same process, in so far as both express the development of productivity. Accumulation in turn accelerates the fall in the profit rate, in so far as it involves the concentration of workers on a large scale and hence a higher composition of capital. On the other hand the fall in the profit rate again accelerates the concentration of capital, and its centralization, by dispossessing the smaller capitalists and expropriating the final residue of direct producers who still have something left to expropriate. In this way there is an acceleration of accumulation as far as its mass is concerned, even though the rate of this accumulation falls together with the rate of profit.

Rising productivity means a falling rate of profit and accelerated accumulation. Accelerated accumulation means that “the production of surplus-value increases more rapidly than the value of the additional capital” (Volume 1, p. 753). This acceleration takes places because increased productivity means falling prices for machines, raw materials and means of consumption for workers. A given sum of profit can hence buy more means of production for the production of surplus-value. At the same time, continuously rising productivity also means that the profit rate falls as established in Chapter 13.

Accumulation means that productivity can be further increased, because better techniques for increasing the productivity of labour are available on a larger scale and bigger, more efficient machines become affordable.

Already in Volume 1, Chapter 25, page 772 and following, we learned that accumulation implies concentration (capital grows in the hands of capitalists firms) and centralisation (small capitals are taken over by larger one). The condition of accumulation is successful accumulation, such that big capitals have better conditions of growth, smaller capitals are bought up or go bankrupt. Now, the fall of the profit rate introduces another reason for concentration and centralisation. Bigger capitals produce with higher individual rates of profit than smaller capitals as they have access to the most productive techniques (leading to generally higher profit rates and extra profits) and are hence in a better position to deal with the fall of the profit rate. This way, the market is cleared of smaller, less productive capitals which leads to concentration of capital in less hands as only bigger capitals survive. Secondly, centralisation takes place as bigger capitals buy smaller ones.

As the rate of profit falls, so does the rate of accumulation, the rate of growth of capital. This is because the substance of accumulation is profit which there is now relatively less. At the same time, accelerated accumulation allows to expand accumulation faster because of falling prices. This means that the tendency of the rate of profit to fall characterises how accumulation takes place: it becomes more contingent on conditions which are independent of the size of surplus-value. Straight-forward accumulation where produced surplus-value is reinvested is de-emphasised compared with accumulation which is premised on price movements and extra profit.

349:4 On the other hand, however, in view of the fact that the rate at which the total capital is valorized, i.e. the rate of profit, is the spur to capitalist production (in the same way as the valorization of capital is its sole purpose), a fall in this rate slows down the formation of new, independent capitals and thus appears as a threat to the development of the capitalist production process; it promotes overproduction, speculation and crises, and leads to the existence of excess capital alongside a surplus population.

The law which produces the tendency of the rate of profit to fall also makes it more difficult for new capitals to be formed because it increases the minimum size of capital which is required. This hinders the formation of new capitals and hence appears to undermine capitalist competition by monopolies.

Furthermore, the tendency of the rate of profit to fall also promotes overproduction and crises as discussed later in this chapter. Speculation is not discussed below. Since Marx distinguishes speculation from the normal course of business, he does not mean the simple fact that every capitalist endeavour — or even every apprentice’s project to learn a particular trade – constitutes speculation because it is premised on expectations of future market developments. Instead, he seems to mean profit derived from price movements alone, instead of the extraction of surplus-value. Insofar as the continuous revolutions of commodity prices mean that investing at the right point in time (after prices dropped, not before), we have that the same process which produces a fall in the profit rate also produces a stronger emphasis on such speculation on the movement of prices.¹

Thus economists like Ricardo, who take the capitalist mode of production as an absolute, feel here that this mode of production creates a barrier for itself and seek the source of this barrier not in production but rather in nature (in the theory of rent). The important thing in their horror at the falling rate of profit is the feeling that the capitalist mode of production comes up against a barrier to the development of the productive forces which has nothing to do with the production of wealth as such; but this characteristic barrier in fact testifies to the restrictiveness and the solely historical and transitory character of the capitalist mode of production; it bears witness that this is not an absolute mode of production for the production of wealth but actually comes into conflict at a certain stage with the latter’s further development.

In societies where the capitalist mode of production prevails increasing productivity produces problems. This is strange, from the standpoint of concrete “wealth as such”. A society which produces more productively has more: more material wealth to consume or more free time. The problems with productivity point to the particular nature of the capitalist process of production, i.e. that this process of production is not “absolute” or universal. To Ricardo’s credit, he “felt” (according to Marx) that something was up here when he studied this phenomenon, something which cannot be said most modern economics or critics of poverty.

Ricardo’s explanation for the tendency of the rate of profit to fall was that a rising ground rent was eating up profits. This explanation is not correct, but cannot be discussed before we introduce ground rent. Here, Marx only contents itself with showing that if profit is split up, its parts can rise and fall independently of the general rate.

Having established above that increasing productivity and falling rate of profit promote centralisation and concentration, we return to the size of capitals.

352:1 It is the extraction of this surplus-value that forms the immediate process of production, and this faces no other barriers than those just mentioned. As soon as the amount of surplus labour it has proved possible to extort has been objectified in commodities, the surplus-value has been produced. But this production of surplus-value is only the first act in the capitalist production process, and its completion only brings to an end the immediate production process itself. Capital has absorbed a given amount of unpaid labour. With the development of this process as expressed in the fall in the profit rate, the mass of surplus-value thus produced swells to monstrous proportions.

The only limit to the production of surplus-value, the ultimate aim of this mode of production, is the population and the rate of surplus-value.² Large capitals, whose development is promoted by the processes which express themselves in the fall in the profit rate, will produce surplus-value to the best of their capacity.

Now comes the second act in the process. The total mass of commodities, the total product, must be sold, both that portion which replaces constant and variable capital and that which represents surplus-value. If this does not happen, or happens only partly, or only at prices that are less than the price of production, then although the worker is certainly exploited, his exploitation is not realized as such for the capitalist and may even not involve any realization of the surplus-value extracted, or only a partial realization; indeed, it may even mean a partial or complete loss of his capital.

But the production of surplus-value is only part of the circuit of capital, all commodities need to be sold in order to realise surplus-value. The purpose of production is the production of surplus-value which is yet to be realised, not merely the exploitation of workers. If surplus-value — or worse part of advanced capital — cannot be realised, this may mean a partial or complete loss of capital.

The conditions for immediate exploitation and for the realization of that exploitation are not identical.

The conditions for immediate exploitation were discussed in Volume 1 and are largely under the control of capital: a submissive working class, extension of the working day, production of relative surplus-value. The conditions or realisation were discussed in Volume 2 in the reproduction schemes.

Not only are they separate in time and space, they are also separate in theory. The former is restricted only by the society’s productive forces, the latter by the proportionality between the different branches of production and by the society’s power of consumption.

Capital will produce according to its size and with the level of productivity of society. It’s production is not limited by what is or will be consumed. Realising value, however, is conditioned on the power of consumption of society. Commodities need to be bought.

And this is determined neither by the absolute power of production nor by the absolute power of consumption but rather by the power of consumption within a given framework of antagonistic conditions of distribution, which reduce the consumption of the vast majority of society to a minimum level, only capable of varying within more or less narrow limits.

Because commodities need to be bought, it does not count if there are people who would like to consume a given commodity. This absolute power of consumption, how many fridges do people need, is not the limit of consumption. It is not demand that counts but effective demand.

The consumption of the working class is confined within narrow limits defined by the process of production which excludes them from the wealth of society by and large. As explained in Volume 2, the point here is not so much that the working class is poor, but that its level of poverty is determined by their relation to the process of production, not what level of wages in different departments is necessary to realise all commodities.³

It is further restricted by the drive for accumulation, the drive to expand capital and produce surplus-value on a larger scale. This is the law governing capitalist production, arising from the constant revolutions in methods of production themselves, from the devaluation of the existing capital which is always associated with this, and from the general competitive struggle and the need to improve production and extend its scale, merely as a means of self-preservation, and on pain of going under.

The bulk of effective demand comes from the capitalist class, in the form of personal consumption and productive consumption. As accumulation progresses, personal consumption — while growing absolutely — shrinks relative to productive consumption, i.e. consumption for the accumulation of capital. This might not seem like much of a limit. After all, accumulation is the boundless pursuit of augmentation. However, already in Chapter 21 of Volume 2, we learned that accumulation is premised on capitals accumulating in all departments in particular relations for it to be successful, simply “as fast as possible” does not cut it. Furthermore, accumulation also means that capitals go bust, leaving their complete supply chain without a purchaser unless another capital steps up, moral depreciation eliminates values from society which cannot purchase other commodities and accumulation in no way is determined by the needs to realise surplus-value but by its own drive and means.

The market, therefore, must be continually extended, so that its relationships and the conditions governing them assume ever more the form of a natural law independent of the producers and become ever more uncontrollable.

Capitals realise if they fit into the market when they try to sell their commodities. They realise that they cannot sell their commodities for the price which would realise profit. In other words, they realise that their commodities cost too much compared to what they can get on the market (cf. Chapter 1). The resolution of this problem is to reduce the cost price, to produce cheaper by increasing productivity. The techniques to increase productivity typically entail an extension of production. Besides, in order to realise the same value using cheaper commodities, more commodities need to be sold. In summary, the reaction to too many products on the market is the extension of production.

The internal contradiction seeks resolution by extending the external field of production. But the more productivity develops, the more it comes into conflict with the narrow basis on which the relations of consumption rest.

This way the old contradiction is reproduced on a higher, bigger level. More commodities are produced using bigger outlays in capital, leading to more overproduction, leading to more reasons to increase productivity to produce cheaper. Accumulation takes place — is successful — by ignoring the constraints of consumption.⁴

It is in no way a contradiction, on this contradictory basis, that excess capital coexists with a growing surplus population; for although the mass of surplus-value produced would rise if these were brought together, yet this would equally heighten the contradiction between the conditions in which this surplus-value was produced and the conditions in which it was realized.

As long as capital manages to ignore the narrow basis on which the relations of consumption rest, it continues to accumulate. When the process stops — for whatever reason — then accumulated capital is excess capital, it cannot valorise itself. Crisis is here. In this situation excess capital — the power to buy everything necessary for successful production of surplus-value coexists with surplus population — the central means to produce more surplus-value. But bringing capital and labour together under these conditions would not result in successful realisation of surplus-value as it cannot be realised.

353:1 Once a certain rate of profit is given, the mass of profit always depends on the magnitude of the capital advanced. But accumulation is then determined by the part of this mass that is transformed back into capital. This part, since it is equal to profit minus the revenue consumed by the capitalists, will depend not only on the value of the total profit but also on the cheapness of the commodities which the capitalist can buy with it; commodities which go partly into his own consumption, his revenue, and partly into his constant capital. (Wages here are taken as given.)

353:2 The mass of capital that the worker sets in motion, and whose value he maintains by his labour and makes reappear in the product, is completely different from the value that he adds. If the mass of capital is 1,000 and the labour added is 100, the capital reproduced is 1,100. If the mass is 100 and the labour added is 20, the capital reproduced is 120. The rate of profit is 10 per cent in the one case, and 20 per cent in the other. Nevertheless, more can be accumulated out of 100 than out of 20. Thus the stream of capital (leaving aside its devaluation as the result of a rise in productivity), or its accumulation, flows on in proportion to the impetus that it already possesses and not in proportion to the rate of profit. It is possible to have a high rate of profit even if labour is unproductive, if this is based on a high rate of surplus-value and the working day is very long; this is possible where the workers’ needs are very slight and the average wage very low, even though labour is unproductive. The low level of wages corresponds to a lack of energy on the workers’ part. Capital therefore accumulates slowly, despite the high profit rate. The population is stagnant, and the product requires a great deal of labour-time, even though the wages that the workers are paid are so small.

354:1 The rate of profit does not fall because the worker is less exploited, but rather because less labour is generally applied in relation to the capital invested.

354:2 If a falling rate of profit coincides with a rise in the mass of profit, as we have shown, then a greater part of the annual product of labour is appropriated by the capitalist under the heading of capital (as replacement for the capital used up) and a relatively smaller part is appropriated under the heading of profit. Hence the fantasy of Reverend Chalmers to the effect that the smaller the mass of the annual product the capitalists spend as capital, the greater the profits they pocket.* The Established Church, of course, is a great help to them here, in making sure that a large portion of the surplus product is consumed instead of being capitalized. The reverend gentleman confuses cause and effect. The mass of profit certainly does grow, even at a smaller rate of profit, as the capital laid out increases. But this brings about a simultaneous concentration of capital, since the conditions of production now require the use of capital on a massive scale. It also leads to the centralization of this capital, i.e. the swallowing-up of small capitalists by big, and their decapitalization. This is simply the divorce of the conditions of labour from the producers raised to a higher power, these smaller capitalists still counting among the producers, since their own labour still plays a role. The work done by the capitalist, in general, stands in inverse proportion to the size of his capital, i.e. to the degree in which he is a capitalist. It is in fact this divorce between the conditions of labour on the one hand and the producers on the other that forms the concept of capital, as this arises with primitive accumulation (Volume 1, Part Eight), subsequently appearing as a constant process in the accumulation and concentration of capital, before it is finally expressed here as the centralization of capitals already existing in a few hands, and the decapitalization of many. This process would entail the rapid breakdown of capitalist production, if counteracting tendencies were not constantly at work alongside this centripetal force, in the direction of decentralization.

Marx’s critique of capitalism expressed here is not that it has crises and overproduction, but the particular reason why it has crises and overproduction: relief of production.