Note on the Organic Composition of Capital

Screenshot from 2019-12-15 12-41-20

The past couple of nights I’ve stayed up way too late puzzling over the best ways to calculate the organic composition of capital — and, as a necessary extension, untangling the relationship between the organic composition (OCC) and its two ‘components’, the technical composition of capital (TCC) and the value composition of capital (VCC). This post is really just my little notes to myself to keep it straight in my head, so if anybody reading has additional insights or whatever feel free to drop them in the comments. Oh, and thanks to Kevin Rogan and MDL for listening to me ramble and providing some good feedback.

In much of the work that I’ve seen done on Marxist economics (including my own meager attempts), the OCC is determined by looking at the ratio of constant capital to variable capital. Constant capital has been derived in various ways, but most look at the value of fixed assets and inventories—and likewise for variable capital, working back from rates of employee compensation. Debates flourish over whether or we assess at historical cost or current cost, and some fairly recent work has emphasized the necessity of factoring in turnover time—the unity of production time and circulation time—in producing accurate measures. There’s a small hiccup, however, with this formula for the OCC (i.e. C/V): this remains closer to what Marx was describing as the VCC than the OCC proper.

In the 25th chapter of Capital Volume 1 (‘The General Law of Capitalist Accumulation’), Marx writes that the “composition of capital is to be understood in a two-fold sense”—a value side and a ‘material’ side. In the case of the former, the composition “is determined by the proportion in which it is divided constant capital… and variable capital”. This is the VCC, with the formula C/V emerging as the means to determine these empirically. Constant capital is the value of the means of production, and variable capital is “sum total of all wages”. Straightforward enough—but this is only one half of the question. On the latter side, the material side, where we’re dealing with the production process, “all capital is divided into means of production and living labor power”. Fred Moseley has rendered living labor power here as the “quantity of productive labor”, carefully controlling for the quantities of laborers employee who function as productive, as opposed to unproductive, labor. No longer C/V, but MP/PL (with MP being the quantities of the means of production, i.e. fixed assets and inventories, and PL being productive labor).

In the ‘division’ between the TCC and VCC, we see a direct echo of Marx’s distinction between use-values and exchange-values. As Marx wrote in the first chapter of Volume 1, “[t]he usefulness of a thing makes it a use-value… It is conditioned by the physical properties of the commodity, and has no existence apart from the latter. It is therefore the physical body of the commodity itself, for instance iron, corn, a diamond…” The TCC is the physical magnitudes of use-values deployed in the production process, put in motion by the equally-physical quantities of living labor. And so it is for the VCC: as we’re dealing here not with physical but monetary quantities, constant capital and variable capital are anchored in their exchange values.

Henryk Grossman makes a similar point:

Ricardo already made the distinction between capital-intensive and labour-intensive spheres of production, which was important for his theory of profit. But he conceived of it purely in terms of value. Marx split Ricardo’s category into its use value and exchange value sides, in order to reunite them in a synthesis. The category of organic composition, transformed in this way, takes on a completely different function, not only for the explanation of profit, as in Ricardo’s work, but also as the ‘most important factor’ in the accumulation of capital

From this angle, the OCC becomes the thing that brings the TCC and the VCC together, just as use-value and exchange-value required something that each are irreducible too. In the context of the production process, the function of the OCC is the expression of the way that the TCC and VCC interact with one another, an interpenetration that works through their fundamental unity (one wonders, then, if Marx’s choice of the word organic is a nod to Hegel’s usage of the term—similar to the argument made by Tombazos that Marx’s invocation of biological metaphors for different aspects of the capitalist process fulfills just that purpose). He writes:

Between the two there is a strict correlation. To express this, I call the value composition of capital, in so far as it is determined by its technical composition and mirrors the changes of the latter, the organic composition of capital. Wherever I refer to the composition of capital, without further qualification, its organic composition is always understood.

Here, both formulations—MP/PL and C/V—are necessary to properly articulating the real nature of the OCC. This becomes clear particularly if we consider the possibility that a given industry might VCCs that appear equal, but diverge on the side of the TCC—as well as a vice-versa. Consider a scenario (and here I’m riffing off an example given by Marx in Volume 3) where Industry A and Industry B both deploy 3000 constant capital and 1500 variable capital. But suppose that Industry A is working with steel, whereas Industry B is working with copper. Because of the chasm between the value of steel and that of copper, the physical quantities of copper at 3000 C in Industry B would be higher than that of steel in Industry B. Thus while the VCC in Industry A and B would be equal, their TCC would be divergent. Similarly, we could just as easily draw up a scenario where Industry A and Industry B have equal quantities of steel, copper, and labor, thus producing an equalization on the side of the TCC, but as long as the value of steel and copper are unequal, the VCCs would diverge. This becomes particularly important when considering the movement of the rate of profit, which is determined by the OCC: we might be able to get a picture of what the ROP is doing by calculating the VCC, but we also lose sight of how that ROP is really being determined.

 

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