BY KARL MARX
The excerpt printed below is taken from Volume 3 of Capital by Karl Marx. In part three of this volume, titled "The Law of the Tendential Fall in the Rate of Profit," Marx explains the tendency for the general rate of profit to fall. It is this tendency that provokes the competitive struggle between capitalists, currency devaluations, and the other pressures driving the ruling class. This falling rate of profit underlies the currency crisis in Asia that has rattled Wall Street investors, highlighting the inner contradictions of capitalism and how the basic laws of motion of the capitalist mode of production lead to explosive crises.

In the mathematical relationship expressed below, C represents the overall capital advanced in the production process. This capital comprises two components: the sum of the money c laid out on the means of production (constant capital - that is machinery, raw materials, etc.) and the amount of money v spent on wage-labor (variable capital). Surplus-value s is the added value created by workers during the production process above the wage paid to maintain their basic necessities for existence. The rate of profit p' is the ratio between the surplus value and the total capital advanced.

Once wages and the working day are given, a variable capital, which we can take as 100, represents a definite number of workers set in motion; it is an index of this number. Say that 100 provides the wages of 100 workers for one week. If these 100 workers perform as much surplus labour as necessary labour, they work as much time for the capitalist each day, for the production of surplus-value, as they do for themselves, for the reproduction of their wages, and their total value product would then be 200, the surplus-value they produce amounting to 100. The rate of surplus-value s/v would be 100 per cent. Yet, as we have seen, this rate of surplus-value will be expressed in very different rates of profit, according to the differing scale of the constant capital c and hence the total capital C, since the rate of profit is s/v. If the rate of surplus-value is 100 per cent, we have:

if c = 50 and v = 100,

then p' = 100/150 = 66 2/3 per cent;

if c = 100 and v = 100,

then p' = 100/200 = 50 per cent;

if c = 200 and v = 100,

then p' = 100/300 = 33 1/3 per cent;

if c = 300 and v = 100,

then p' = 100/400 = 25 per cent;

if c = 400 and v = 100,

then p' = 100/500 = 20 per cent.

The same rate of surplus-value, therefore, and an unchanged level of exploitation of labour, is expressed in a falling rate of profit, as the value of the constant capital and hence the total capital grows with the constant capital's material volume.

If we further assume now that this gradual change in the composition of capital does not just characterize certain individual spheres of production, but occurs in more or less all spheres, or at least the decisive ones, and that it therefore involves changes in the average organic composition of the total capital belonging to a given society, then this gradual growth in the constant capital, in relation to the variable, must necessarily result in a gradual fall in the general rate of profit, given that the rate of surplus-value, or the level of exploitation of labour by capital, remains the same. Moreover, it has been shown to be a law of the capitalist mode of production that its development does in fact involve a relative decline in the relation of variable capital to constant, and hence also to the total capital set in motion.

This simply means that the same number of workers or the same quantity of labour-power that is made available by a variable capital of a given value, as a result of the specific methods of production that develop within capitalist production, sets in motion, works up, and productively consumes, within the same period, an ever-growing mass of means of labour, machinery and fixed capital of all kinds, and raw and ancillary materials - in other words, the same number of workers operate with a constant capital of ever-growing scale.

This progressive decline in the variable capital in relation to the constant capital, and hence in relation to the total capital as well, is identical with the progressively rising organic composition, on average, of the social capital as a whole. It is just another expression for the progressive development of the social productivity of labour, which is shown by the way that the growing use of machinery and fixed capital generally enables more raw and ancillary materials to be transformed into products in the same time by the same number of workers, i.e. with less labour.

There corresponds to this growing volume of constant capital - although this expresses only at a certain remove the growth in the actual mass of use-values which the constant capital consists of in material terms - a continual cheapening of the product. Each individual product, taken by itself, contains a smaller sum of labour than at a lower stage of development of production, where the capital laid out on labour stands in a far higher ratio to that laid out on means of production.

The hypothetical series we constructed at the opening of this chapter therefore expresses the actual tendency of capitalist production. With the progressive decline in the variable capital in relation to the constant capital, this tendency leads to a rising organic composition of the total capital, and the direct result of this is that the rate of surplus-value, with the level of exploitation of labour remaining the same or even rising, is expressed in a steadily falling general rate of profit. (We shall show later on why this fall does not present itself in such an absolute form, but rather more in the tendency to a progressive fall.)

The progressive tendency for the general rate of profit to fall is thus simply the expression, peculiar to the capitalist mode of production, of the progressive development of the social productivity of labour. This does not mean that the rate of profit may not fall temporarily for other reasons as well, but it does prove that it is a self-evident necessity, deriving from the nature of the capitalist mode of production itself, that as it advances the general average rate of surplus-value must be expressed in a falling general rate of profit. Since the mass of living labour applied continuously declines in relation to the mass of objectified labour that it sets in motion, i.e. the productively consumed means of production, the part of this living labour that is unpaid and objectified in surplus-value must also stand in an ever-decreasing ratio to the value of the total capital applied. But this ratio between the mass of surplus-value and the total capital applied in fact constitutes the rate of profit, which must therefore steadily fall.  
 
 
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