Organic Composition of Capital

The organic composition of capital (OCC) is a concept created by Karl Marx in his critique of political economy and used in Marxian economics as a theoretical alternative to neo-classical concepts of factors of production, production functions, capital productivity and capital-output ratios. It is normally defined as the ratio of constant capital (capital invested in plant, equipment and materials) to variable capital (capital invested in the labour-costs involved in hiring employees). The concept does not apply to all capital assets, only to capital invested in production (i.e. production capital).

Marx first referred to the idea in 1847 and discussed it in detail in Capital Vol. 1, chapter 23 ("The General law of Capitalist Accumulation"). In Capital Vol. 3 Marx demonstrates that the organic composition of capital decisively influences industrial profitability.

According to Marx, the OCC expresses the specific form which the capitalist mode of production gives to the relationship between means of production and labor power, determining the productivity of labor and the creation of a surplus product. This relationship has both technical and social aspects, reflecting the fact that simultaneously consumable use values and commercial exchange-values are being produced.

Marx calls this capital composition "organic", because it refers to the relationship between "living" and "dead" (or inert) elements in a capital investment. The "living element" is employed labour actively at work. The "dead" parts are the tools, materials and equipment worked with, which are the results of past labour (this analogy becomes dubious e.g. in the case of agriculture and biotechnologies).

Marx argues that a rising organic composition of capital is a necessary effect of capital accumulation and competition in the sphere of production, at least in the long term. This means that the share of constant capital in the total capital outlay increases, and that labor input per product unit declines.