rate of profit

Also found in: Wikipedia.

rate of profit

(MARXISM) the SURPLUS VALUE created in production, divided by the quantity of CONSTANT AND VARIABLE CAPITAL used in production (S/C + V). Since it can be calculated only indirectly in terms of theoretical labour values (see LABOUR THEORY OF VALUE), this means of determining profit differs from the empirical method used in orthodox economics and there are many problems in its interpretation. See also ORGANIC COMPOSITION OF CAPITAL, TENDENCY TO DECLINING RATE OF PROFIT.

Rate of Profit


the ratio of surplus value (ordinarily, of the annual total surplus value) to all advanced capital, expressed as a percentage. This figure characterizes the efficiency of capital use and the profitability of a capitalist enterprise. It may be expressed by the formula p’ = m/c + v • 100, where m is the mass of surplus value, c is constant capital, and v is variable capital.

The rate of profit is a converted form of the rate of surplus value. It camouflages capitalist exploitation because profit is represented as the result of all advanced capital, not just variable capital. “Since in the rate of profit the surplus value is calculated in relation to the total capital and the latter is taken as its standard of measurement,” K. Marx wrote, “the surplus value itself appears to originate from the total capital, uniformly derived from all its parts, so that the organic difference between constant and variable capital is obliterated in the conception of profit” (K. Marx and F. Engels, Soch., 2nd ed., vol. 25, part. 1, pp. 182–83). The magnitude of the rate of profit is directly dependent on the rate of surplus value. Endeavoring to ensure the greatest rate of profit, capitalist entrepreneurs raise the level of exploitation of hired workers. At the same time the capitalists economize on constant capital, with the result that in many cases working conditions deteriorate.

Growth in the index of the organic composition of capital reduces the rate of profit, while increasing the velocity of turnover increases the profit rate. Different sectors of capitalist industry have different organic compositions of capital and turnover times, which inevitably results in different rates of profit also. Intersector competition leads to a flow of capital from sectors with comparatively low profit rates to sectors that ensure more rapid growth of advanced capital. As a result, a general (average) rate of profit for equal amounts of capital is established. As the index of the organic composition of capital rises, the rate of profit has a tendency to drop. This tendency is characterized by the intensification of worker exploitation and efforts to economize on means of production.

Increase in the rate and mass of profit is the moving force of capitalist production. The rate of profit expresses not only the acute contradictions among certain groups and individuals within the capitalist class who seek to share in the division of profits; it also expresses the fundamental antagonistic class contradiction between the bourgeoisie and the proletariat. Every capitalist participates in the exploitaton of the working class as a whole by all capital, and this forms the economic basis of the class solidarity of the bourgeoisie in its struggle against the proletariat. For this reason the working class, as its consciousness and organization grow, moves from isolated actions against individual capitalists to struggle against the entire capitalist system. Under contemporary capitalism the average rate of profit usually operates as the lower limit of profitability for capital advanced by the large monopolies.


Marx, K. Kapital, vol. 3. In K. Marx and F. Engels, Soch., vol. 25. Marx, K. “Teorii pribavochnoi stoimosti” (vol. 4 of Kapital). Ibid. vol. 26, part 1.
Lenin, V. I. “Karl Marx.” Poln. sobr. soch., 5th ed., vol. 26.
Vygodskii, S. L. Teoriia srednei pribyli i tseny proizvodstva K. Marksa v svete sowemennykh dannykh. Moscow, 1956.
Nikitin, S. Problemy tsenoobrazovaniia v usloviiakh sovremennogo kapitalizma. Moscow, 1973.


References in periodicals archive ?
For reasons explained below, the firm's average rate of profit, expressed as a function of the interval between price changes, is considerably flatter about its maximum value than is the profit function expressing the firm's instantaneous rate of profit as a function of its real price.
The natural equilibrium dynamic interpretation of Ricardo thus focuses on the inverse relation between the labor content of agricultural products (corn) and the general rate of profit [ Caravale and Tosato, 1980, ch.
The Islamabad Market Committee, in co-operation with traders is keeping the rate of profit of fruit and vegetables at minimum level during Ramzan in order to provide relief to the citizens.
In a recent article, Freeman (2012) proposes a new approach to the calculation of the Marxian average rate of profit (ARP), namely that marketable financial securities, as well as fixed assets, should be included in the denominator of the ARP to ensure that the latter reflects the dramatic increase in the volume and variety of financial instruments in recent decades.
The circular requires the commercial banks to pay the above minimum rate of profit on all Pak Rupee saving deposits on average monthly balances.
Chief Minister, Shahbaz Sharif said that private hospitals should minimize their rate of profit in the treatment of dengue patients.
When in the 1960s and 70s the rate of profit in manufacturing industry fell because too many goods were swamping a limited market British, capitalists themselves destroyed British industry, asset stripping industry for short term profit and moving industry to countries less progressive than ours where labour costs were lower.
Canada) provides a Marxist analysis of the origins, implications, and scope of the global economic crisis that began in 2008, arguing that it should be seen as both a conjunctural crisis of overproduction, credit, and finance and a deep-seated systemic crisis connected to Marx's "law of the tendency of the rate of profit to fall," which has long been a central theme in Marxist structural critiques of capitalism.
He made a distinction between (i) 'Circumstances which determine the Rate of Profit before the Divisions of Employment are established' (Torrens 1829, p.
When one bears in mind that the average rate of profit in the industry is in the region of 10 to 15 per cent, this is a significant blow.
I therefore saw it as my central task to explain why the rate of profit, especially in manufacturing, not only fell sharply between 1965 and 1973, but also failed for so long to recover, and not just in the U.
Chapters 3 through 6 thus contain a discussion of several basic concepts of Smith's theoretical construction: surplus, competition, measure of value and the explanation of value and distribution--the central theme being represented by the idea that Smith did have a surplus explanation for the aggregate profits (plus rents), but did not use it to derive a theory of the rate of profit.