rate of profit
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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.
REFERENCESMarx, 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