Tendency for the rate of profit to fall

[PinkoCommieScum]

Ok, I've been reading up on Marxist economics and I've been trying to understand this. I sort-of get it. Could anyone help in explaining it?

[cormacobear]

It has partially to do with scarcity. When a product is new and it's production is just beggining the demand is high and the quantity low, this creates a high priced commodity. Once production has peaked many people have whatever it is, andcompetitors begin flodding a previously exclusive market. These cause prices to fall. Being paid less for the same product profits will fall.

[Snitza]

Originally posted by [email protected] 21 2004, 08:38 PM
It has partially to do with scarcity. When a product is new and it's production is just beggining the demand is high and the quantity low, this creates a high priced commodity. Once production has peaked many people have whatever it is, andcompetitors begin flodding a previously exclusive market. These cause prices to fall. Being paid less for the same product profits will fall.
(Emphasis added.)

Just because the value of the individual product falls, doesn't mean the rate of profit even moves. The explanation you give to Pinko doesn't take into consideration all of the factors surrounding "profit".

You said it yourself, right before making a contradiction in your conclusion: Scarcity is what makes the product valuable. Once it ceases to be scarce, and hence to be valuable, the value of each individual product does indeed fall. Marx explains this in chapter one of Capital. It's economics 101.

However, while the value of each commodity produced falls, they are falling(you said it yourself) because production rate has risen, and more commodities are being sold. The fact that more commodities are being sold, and that instead of one $10 salads being sold, two $5 salads are, doesn't mean squat about the rate of profit moving in any direction at all.

The higher rate of production (often more than) makes up for the falling value of the commodity.

[cormacobear]

if it costs $2 to make a salad selling one for ten leaves $8 profit selling 2 for $5 leaves $6 profit.

Yes it was a simplistic explanation. But if you include all the factors that influence profit, youd have to write out a whole page with convoluted formulas.......and i'm lazy

[Djehuti]

Marx goes through The falling tendency of the profitquota fist in the third book of Das Kapital, and I have not read that far yet. I know something though.

The formula for the profit quote is:
p'=s/c+v (P' is profitquota, S is surplus value, C is constant capital, V is variable capital, or simply wage)

The formula for the falling tendency of the profit quota is:
p' = s' (1 — o) (S' is the surplus value quota, o is the organic composition)
So of the organic composition of capital rises, the profitquota (NOTE: profitquota, the profit usually rise) falls.

I will try to explain. The capitalist discovers that if he introduces new technology, new machines, etc (hence the constant capital rises), he could produce more commodities at the same time, with the same labour, or the same amount of commodities at the same time with less labour. So called development of productivity. This enables him to raise his profts. Other capialists will be forced to introduce the same, or even more advanced technology so they wont be out of business. And so it continues.
The competition forces forth that a relativly larger part of the total capital must be invested in constant capital (C,), and a realativly less part will be invested in variable capital (though in absolute numbers both can rise, and often they do). The relation between C and V Marx called the organic composition of Capital: the higher share of K, the higher organic composition. Remember that only V (labour) can create value, and hence also surplus value, S. (C only transfer its own value).
Because of this, the profit quota (s/c+v) falls because V, the part that creates value, is reduced in relation to C. The profit quota (P') falls because the labour gets more productive.

Do you understand? I find it quite hard to explain on english, since I have no clue how to translate all terms and formulas into english, english is just my second language and I have not read much marxists economy in english.

[Severian]

Originally posted by [email protected] 29 2004, 07:47 AM


The formula for the profit quote is:
p'=s/c+v (P' is profitquota, S is surplus value, C is constant capital, V is variable capital, or simply wage)

The formula for the falling tendency of the profit quota is:
p' = s' (1 — o) (S' is the surplus value quota, o is the organic composition)
So of the organic composition of capital rises, the profitquota (NOTE: profitquota, the profit usually rise) falls.

I will try to explain. The capitalist discovers that if he introduces new technology, new machines, etc (hence the constant capital rises), he could produce more commodities at the same time, with the same labour, or the same amount of commodities at the same time with less labour. So called development of productivity. This enables him to raise his profts. Other capialists will be forced to introduce the same, or even more advanced technology so they wont be out of business. And so it continues.
The competition forces forth that a relativly larger part of the total capital must be invested in constant capital (C,), and a realativly less part will be invested in variable capital (though in absolute numbers both can rise, and often they do). The relation between C and V Marx called the organic composition of Capital: the higher share of K, the higher organic composition. Remember that only V (labour) can create value, and hence also surplus value, S. (C only transfer its own value).
Because of this, the profit quota (s/c+v) falls because V, the part that creates value, is reduced in relation to C. The profit quota (P') falls because the labour gets more productive.

Do you understand? I find it quite hard to explain on english, since I have no clue how to translate all terms and formulas into english, english is just my second language and I have not read much marxists economy in english.
Yeah. Or to oversimplify a bit: over time, a larger and larger part of the capital is invested in machinery, buildings, etc rather than wages (buying labor-power); and it is only the labor-power which creates profit.

[flyby]

Serivian starts to dig into this:

Surplus value (i.e. profit) comes from the employment of labor power in production.

As modern capitalist industry develops capital investment increases (in relation to wage investment) -- i.e. the "organic composition of capital rises."

There is a tendency to spend more and more on machinery compared to the expenditure on labor power. And so there is a tendency for the amount of surplus value to decline for comparable investments.

This is, however, only a tendency, not a law. There are other tendencies (like the tendency for capital to cheapen). So it is a pull on the dynamic of capitalism -- not some linear, inevitable, firmly fixed trend.