Rate of profit

The concept of profit is an economic category , which at Karl Marx ( 1818 - 1883 ) plays a central role. It presses the recycling rate of used capital from. This is a loan translation from the English "rate of profit", also "profit rate". In German usage the word “Profitrate” has a Marxist influence. Instead, “bourgeois” terms such as “ profitability ”, “ return on investment ”, yield or return on investment are used.

Differences to “bourgeois” definitions

There are no fundamental differences between the bourgeois and Marxist rate of profit. The differences between Marxian and bourgeois economics have some implications. Marx's economic theory is based on values in accordance with Marx's labor theory . Businesses and bourgeois economics, on the other hand, assume prices and wages. For example, a company has to make a correction calculation if there is monetary devaluation or inflation , this is not necessary with Marx, since he looks at the values straight away.

When referring to the reference variable capital, the quotient of the equation

{\ displaystyle {\ text {Win rate}} = {\ frac {\ text {Profit}} {\ text {Capital employed}}}}

sometimes only the capital stock (buildings, production facilities and machinery or fixed assets for accounting purposes) is used for simplification purposes. As a rule, Marx's rate of profit - basically no different than in business administration - has a broader concept of capital, in which, in addition to fixed assets, current assets (constant circulating capital in Marx) as well as the sum of values for wages and salaries paid out, the variable capital.

The general rate of profit

An average rate of profit can be calculated from the individual individual rates of profit, weighted by capital. In addition, there is a tendency towards equalization of the rates of profit, so that a general, societal average rate of profit , a uniform general rate of profit, develops.

Mathematical representation

Basic formula

The rate of profit (in the sense of Karl Marx's analysis of capital) expresses the relationship between the surplus value generated and the use of capital necessary for this generation . Capital is made up of constant capital (i.e. capital for machinery, buildings, raw and auxiliary materials, semi-finished goods) and variable capital , the wages for the labor employed: ${\ displaystyle m}$ ${\ displaystyle C}$ ${\ displaystyle C}$ ${\ displaystyle c}$ ${\ displaystyle v}$ ${\ displaystyle C = c + v}$

Formally, the rate of profit is expressed as: ${\ displaystyle p}$

{\ displaystyle p = {\ frac {m} {C}} = {\ frac {m} {c + v}} = {\ frac {\ frac {m} {v}} {{\ frac {c} { v}} + 1}}}

Turnover rate of capital

With the above formula, the value of a mill building that lasts ninety years cannot simply be added up to the value of the grain that is ground into flour on the same day to form “constant capital”, rather the different lifetimes of the constituents of constant capital must be taken into account or, in other words, the different turnover rates of capital .

See detailed numerical example below.

Stream size or stock size

The surplus value arises in a certain period of time, so it is a flow quantity. The capital input, on the other hand, can be understood both as consumption per period ( flow variable ) and as inventory at the beginning of the period, which is required in order to be able to carry out the production process in the following period.

See detailed numerical example below, in which capital is included in the formula as a stock value at the beginning of the period.

Acquisition costs or replacement costs

In order to determine the profit, the excess of the production value c + v + m over the costs c + v must be determined. The costs can be determined at acquisition costs . However, if the capitalist wants to determine to what extent the substance of his company will be preserved, he must calculate the costs at replacement costs . What matters is not what the means of production once cost, but what their replacement will cost when they are used up. If inflation prevails , these costs will increase. On the other hand, in the course of technical progress, the means of production are manufactured more and more cheaply. Viewed in this way, it is to be expected that the replacement costs are lower than the acquisition costs.

Finally, what comes into play is that if companies want to keep up with the competition, they have to purchase the latest technical means of production. One can assume that the more expensive the new means of production, the greater the rate of profit that can be achieved with them. However, this creates a paradox. Companies will tend to invest an ever larger part of the capital to be invested as constant capital in order to buy the most profitable means of production. But if all capitalists do this, the technologically determined replacement costs rise, the costs that are necessary if the company wants to continue to assert itself in the competition. As a result, the rate of profit, calculated at the technologically determined replacement costs, falls. This is the law of the tendency for the rate of profit to fall .

profit

The profit is the innermost driving force of the capitalist mode of production d. That is, only that and only then is produced when production yields a higher value than was necessary for its production in terms of values. This 'more' of values is the surplus value (which is transformed into the different parts of the surplus value, namely entrepreneurial profit (profit), interest , rent), which results from the unpaid surplus labor.

Law of the tendency of the rate of profit to fall

See main article Law of the Tendentious Fall of the Rate of Profit

This law expresses the following: The accumulation of capital, i.e. H. the permanent expansion of the material as well as the value basis of production takes place in a stronger expansion of constant capital in relation to variable capital. (The value composition of capital , the ratio c to v , grows, see above formula).

So that the rate of profit does not decrease as a result, to compensate m : v , the surplus value rate , the ratio of surplus value m to total wages or variable capital v must be expanded accordingly (see above formula). Since, according to Marx, this cannot be achieved or can only be achieved inadequately, the rate of profit tends to fall.

It is essential that the transfer of value (of constant capital) and the generation of new value (of variable capital and surplus value, in total the new value m + v ) according to the labor value theory exclusively through "living work", more precisely through the work of " free “ wage laborers , within the work process.

The permanent compulsion to expand capital ( technical improvements to assert oneself in the competition with other individual capitals) perpetuates this overall economic trend.

A well-known criticism of the law is the Okishio theorem .

Definition of profit and rate of profit in detail

example

At the beginning of a “year” (a different period length can also be chosen, then other numerical values result) the capitalist must invest a certain amount of capital.

He must z. B. invest:

€ 100 for wages ( variable capital v )

He must also invest for constant capital c :

100 € for production material
100 € for devices (with a lifespan of 2 years)
100 € for machines (with a lifespan of 4 years)
100 € for a production system (with an infinitely long service life).

In total, he invests € 500 at the beginning of the year .

It should now continue to be assumed that goods worth € 300 will be produced and sold during the year .

However, the costs incurred during the year must be deducted from this turnover. These are for circulating capital , i.e. expenditures for the means of production and labor that are consumed again during the year:

100 € wage costs (variable capital) - that was the assumption above.
100 € expenditure for production material - again according to the above assumption.
Fixed capital costs ( depreciation ).

The value of means of production that are used over several years represents fixed capital: the capitalist must take into account that his devices and machines do not last forever, but have to be replaced when they are worn out. So he has to put back some of the proceeds every year ( depreciation ) in order to be able to make the replacement investments at the end of the life of the devices and machines. Each year he has to write off 50 € from the devices ( 100 € acquisition costs divided by the service life of 2 years, linear depreciation is assumed) and 25 € from the machines (100 € acquisition costs divided by the service life of 4 years). He does not have to write anything off the production system, because in this example it lasts forever.

The total costs per year are therefore € 275 .

If you subtract these costs from the turnover of 300 € , a profit of 25 € remains (here equal to the added value m). 25 € based on a capital investment of 500 € results in a profit rate of 5 percent for this year .

particularities

In this example it was assumed that wages are paid in advance, i.e. at the beginning of the year. If they are paid in arrears at the end of the year, they are still to be deducted from sales as costs, but they are no longer included in the capital employed at the beginning of the year. The rate of profit then has another higher value.

In the example it was assumed that the turnover period of the production material is one year. The 100 euros must therefore be held at the beginning of the year. If, on the other hand, the production material can be bought continuously during the year (capital turnover period for production material is less than a year), then less capital has to be reserved for them. The rate of profit is correspondingly higher. The same applies to wages. If these are continuously paid out as monthly, daily or hourly wages, the capitalist has to reserve less capital for wages.

Moral wear and tear

In the example, the lifespan of the fixed capital is determined by physical wear and tear, by physical wear and tear in the production process. Karl Marx also mentions moral wear and tear, the devaluation of fixed capital, because newer means of production with a higher rate of profit spread and devalue the old means of production. In the example above, for example, the value of the physically perpetual systems could drop to zero after four years due to technical progress. Then the systems would also have to be depreciated annually at € 25. The profit of € 25 without moral wear and tear would drop to € 0 with moral wear and tear. In capitalism there is a rationality trap in the sense that the acquisition of new plants with a higher rate of profit gives the capitalist a competitive advantage, but if these new plants spread to the economy as a whole, they set the norm and devalue old existing means of production. This devaluation is one of the costs and reduces the profits.

Web links

Karl Marx: Effect of the capital turnover on the rate of profit

Individual proof

↑ Cf. MEW 25, 118f .: "... although the rate of profit is determined by the total value of the applied capital, regardless of how much of it is consumed or not." Quoted from Stephan Krüger: "General theory of capital accumulation - business cycle and long-term development tendencies." , Critique of Political Economy and Analysis of Capitalism, Volume 1 “, Hamburg 2010, p. 434.

[1] Cf. MEW 25, 118f .: "... although the rate of profit is determined by the total value of the applied capital, regardless of how much of it is consumed or not." Quoted from Stephan Krüger: "General theory of capital accumulation - business cycle and long-term development tendencies." , Critique of Political Economy and Analysis of Capitalism, Volume 1 “, Hamburg 2010, p. 434.