Organic Composition of Capital

[ComradeAllende]

I've heard this term tossed around a lot in Marxist literature, and I get what it means (higher ratio of constant capital to variable capital), but I'm not sure what it entails. In other words, I'm not sure as to why an increase in the organic composition of capital leads to a decrease in the rate of profit. Is it because variable capital (i.e labor) is the only force capable of producing surplus value (and if so, why), or because labor/variable capital "helps" the capitalist realize surplus value through consumption?

P.S. I'm kinda confused on the terminology. Shouldn't it be called the "inorganic composition of capital" because of how constant capital (i.e. machines) increases in proportion to variable capital?

[Hatshepsut]

The confusing terminology comes from the German, I think. Organische can mean “organized, mechanized” instead of “biological.” But English speakers always read “organic” as biological. Now, if the Organic Composition OC is

OC = c/v

and the Rate of Profit is

RP = s/(c + v) = (s/v) / (c/v + 1)

Then as c/v increases, RP must decrease because its denominator is getting bigger. This reflects the tendency of advanced capitalism to have sophisticated, expensive machinery so you get a high c. But the v, which might be in Haiti, can remain the same or get smaller as capitalism advances. So, c/v keeps getting bigger and profit margins go down.

Don’t take my word on this; I’m not too good at it either. More at

Definition, organic composition: https://www.marxists.org/glossary/terms/o/r.htm
Equations: http://www.anwarshaikhecon.org/sortable/images/docs/publications/political_economy/1986/6-pal4.pdf

[Kostador]

"because variable capital (i.e labor) is the only force capable of producing surplus value"
You can't have exploitation, and therefore surplus-value, without workers.
Another formula must be considered as well: this is the rate of surplus value or the rate of exploitation of the working class. It specifies the way in which the newly produced value is divided between workers and capitalists. If, for instance, S/V equals 1 this means that the newly produced value is divided into two equal parts, one part going to the workers in the form of wages, the other going to the bourgeois class in the form of profits, interest, dividends, etc.
If theoretically V was 0, assuming complete automation arrived, then there won't be any surplus-value if you think about it.

[Luís Henrique]

I've heard this term tossed around a lot in Marxist literature, and I get what it means (higher ratio of constant capital to variable capital), but I'm not sure what it entails. In other words, I'm not sure as to why an increase in the organic composition of capital leads to a decrease in the rate of profit. Is it because variable capital (i.e labor) is the only force capable of producing surplus value (and if so, why), or because labor/variable capital "helps" the capitalist realize surplus value through consumption?

Yes on both counts. Labour is what produces surplus value, so if labour's part in production declines, so does surplus value (unless the rate of surplus value is increased). And evidently, capitalism relies in the production of commodities, but a commodity needs to be bought, or it will not become what it is (a commodity that cannot be sold isn't a commodity).


P.S. I'm kinda confused on the terminology. Shouldn't it be called the "inorganic composition of capital" because of how constant capital (i.e. machines) increases in proportion to variable capital?

It is based in thinking of capital as an organism: if so, it must have an organic composition, and that is the relation between constant capital and variable capital. We call it an "increase" in the organic composition because this is the spontaneous trend in capitalism, but we could call it a "decrease" as well; it doesn't refer to a supposed contradistinction between "organic" and "inorganic" parts of capital.

It is to notice that both the increase in the organic composition of capital and the fall in the profit rate are long-term tendencies; they may be, and (especially the latter) quite certainly are, countered by other structural or superstructural phenomena.

Luís Henrique

[RedMaterialist]

Is it because variable capital (i.e labor) is the only force capable of producing surplus value (and if so, why), or because labor/variable capital "helps" the capitalist realize surplus value through consumption?

P.S. I'm kinda confused on the terminology. Shouldn't it be called the "inorganic composition of capital" because of how constant capital (i.e. machines) increases in proportion to variable capital?

This is the way I understand it.

Profit can only come from the exploitation of living human labor. So, if the use of dead human labor, machinery, continues to rise (which it must in capitalism--from, say, steam powered weaving to computers, etc.) then the share of what is produced by living human labor decreases.

The fact that only labor produces surplus value and profit is, of course, the basis of the Marxist analysis of capital. It is the so-called Labor Theory of Value. When humans work they produce more value (profit + wages) than the cost of their upkeep/maintenance (wages). This "added value" is appropriated by the capitalists at no cost to themselves.

Marx explains this is Chapter 7-10 (or so) in Vol I. It's where he explains to the astonished capitalist that he/she extracts more value from the production process than he puts in. The capitalist thus violates the rule that all output must equal (or be no more than) input. Capitalists violate the rule that there is no free lunch.

The worker indeed helps the capitalist to "realize" the surplus-value as profit at the time of sale. This is why the capitalists and their economic apologists believe that profit originates outside of production in the process of exchange in the market. The market is where they see the money change hands (as in, show me the money.) They don't realize that profit/surplus value is already contained in the product when it goes on the shelf.

This also helps to explain the under-consumption nature of a crisis. When the working class or consuming class can no longer buy the products of the capitalists then the system will shut down.

Also, I think there is empirical proof now (economic statistics) that labor is the source of value. The total GDP numbers (produced by the Bureau of Economic Analysis of the U.S. Dept of Commerce) show that the total value produced by living labor (goods and services) is more than the total wages paid each year to living labor. Where does the difference come from? Even the BEA says that price is equal to non-labor costs +labor costs + profit. They of course don't explain how profit is produced before the price is determined.

In Europe the OECD has statistics showing that the median US wage is about $25K per year, but the value which the median worker produces is about $50K per yr. That difference, in my view, is surplus value. Also, the Department of Labor produces an index of labor productivity as it relates to the index of wages. Needless to say, the productivity index is always higher than the wage index.

The capitalists say that the difference is produced by the genius of the masters of the universe. And yet the destructive crises continue to happen.

At least, IMO.

As far as the terminology, you might think of it as an analogy of the composition of hydrogen to oxygen in air and assume that value can only be produced by oxygen. Thus, as the oxygen content decreases relative to the hydrogen then the rate of value-profit produced will decline. The oxygen composition would be H/O. The Oxygen composition relative to Hydrogen would be in terms of oxygen. Or something like that.