18 Jul 2014

The tendency of the rate of profit to fall

Example in Socialist Review goes something like this. I've adapted it to help me understand it and have got utterly confused: see Notes below.
In one day, a capitalist manufacturing TVs puts £2,000 into employing ten workers (variable capital) and £2,000 into machines (constant capital). If the workforce produces 40 TVs a day, each TV will embody £100: £50 variable and £50 constant capital or, to put it another way, £50 worker's wages and £50 surplus value. The capitalist’s rate of profit (also known as his* return on investment) is fifty percent: he has invested £4,000, produced £4,000 worth of TVs, paid his workers £2,000 and so he has £2,000 to show for it. [Note: it looks to me like the ten workers have got £200 each in wages for the day while the capitalist has actually made a loss of £2,000! As I said, I’m utterly confused.]
Then the capitalist invests in more expensive machinery which can produce more TVs in one day with the same workforce. For example, on day 2, the capitalist spends £4,000 on machinery and £2,000 on workers and now produces 100 TVs a day.  That's a total output of £6,000. Each TV now embodies £60, which is £40 constant capital (as the machinery costs have doubled) and £20 variable capital (as the workforce is the same as before) or, to put it another way, £40 surplus value and £20 worker's wages. 
In the second case both the constant and variable capital have decreased. But at the same time the ratio of constant capital to variable capital has increased.  It was 1:1 and now it is 2:1. But the TVs don't only embody constant and variable capital. They also embody the surplus value that the capitalist can only extract from workers or, to put it another way, the profit that can only come from human labour. The new machinery has halved the labour time required to produce each TV, so the rate of profit has fallen. The capitalist’s rate of profit (or return on investment) is thirty-three and a third percent: he has invested £6,000, produced £6,000 worth of TVs, paid his workers £2,000 and so he has again got £2,000 to show for it. [Note: again, it looks to me like the ten workers have got £200 each in wages for the day while the capitalist has again made a loss of £2,000! I'm still utterly confused.]
So that’s an example that shows the tendency of the rate of profit to fall from 50% to 33.3% - except that it seems to show no profit at all, only a loss! Where have I gone wrong?
*For convenience (and realism) the capitalist in this example is a man.

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