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.

REFERENCES

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.

R. M. ENTOV

References in periodicals archive ?
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.
Knowledge of the dynamics of this equalization process (and a clear characterization of the rate of profit driving it) can help build a well-specified explanatory model in the future.
The impairment will be reported in the profit and loss account as a non-cash, exceptional item in the fourth quarter of 2004, and has no impact on Heineken's organic rate of profit growth.
Harman, among others, sources this great slowdown in the Western economies to the tendency for the rate of profit to fall.
Canada) began as a collection of essays published from the early 1970s onwards on discrete economic topics--neo-Ricardian theory, analytical Marxism, the falling rate of profit, crisis theory, monopoly capital, Paul Sweezy, advertising, and the capitalist state--but as he put it together he came to realize that there was a unifying theme running through them concerning the methodological project of Karl Marx, which he here aims to "rescue and retrieve" by also including five new essays describing it in relation to the other topics in the essays.
The rate of profit on Defence Savings Certificates i.
He said Slough was unlikely to match 1999's rate of profit growth but would deliver another strong result in 2000.
Raza cited mutual funds as the main threat to the deposit base of commercial banks since people would prefer investing in them, adding that ever increasing business of mutual funds would force commercial banks to raise their present rate of profit.
Drawing heavily on the work of Fernand Braudel, Joseph Schumpeter, Karl Polanyi, and Giovanni Arrighi, Jha (columnist and former editor, Hindustan Times, India) argues that capitalism is a cyclic phenomenon in which sharp increases in profit enabled by new technologies and management practices trigger long cycles of capital accumulation that, every hundred to two hundred years, reaches critical mass because the rate of profit on future investment begins to fall just as the rate of profit on existing investment reaches a peak.
Airspray maintains its expected growth rate of profit before tax of around 15% for all of 2003.
presents an intellectual biography of Henryk Grossman (1881-1950), a longtime member of the Polish Communist Party whose studies of Marx's Capital highlighted and expanded upon the crisis theory of capitalism, which insists on the tendency of the rate of profit to fall as central to capitalism's inability to maintain growth without periods of sharp economic contraction.
Profit margins for Spear Leeds have exceeded its rate of profit growth as enhanced technology and straight through processing reduce costs on a per-transaction basis.