Organic Composition of Capital - The OCC and Crises

The OCC and Crises

The magnitude of the OCC is important in Marxist crisis theory because of its impact on the average rate of profit. The implication of a rise in the organic composition of capital is a declining rate of profit; for every new increase in surplus-value realised as profit from sales, an even larger corresponding increase in constant capital investment becomes necessary.

But this represents only a tendency, Marx argues, because the fall of the rate of profit can be offset by counteracting influences. The main ones include:

• buying constant capital inputs at a lower cost.
• an increase in the rate of exploitation and productivity of labour power (including the intensity of work).
• a reduction of the turnover-time of constant capital inputs.
• the reduction of salaries and labour costs paid.
• a pool of abundant cheap labor, at home or abroad.
• foreign trade which reduces constant capital-input costs.
• technological innovations which reduce constant capital-input costs.
• the specific distribution of surplus-value as profit, interest, rent, taxes and fees, and the division between distributed and undistributed components of the new value added.
• market expansion (more sales, in less time).
• monopolistic or oligopolistic pricing of outputs, or in some way artificially raising output prices.
• reduction of the tax burden
• criminal methods to reduce costs and increase sales and profits

Because numerous different factors can affect profitability, the overall effects of a rising OCC on average industrial profitability therefore really have to be evaluated empirically in a longer time-span, e.g. 20–25 years.

Insofar as the trajectory of capitalist development is, as Marx argues, ruled by the quest for extra surplus-value, the economic fate of the system can be summarised as an interaction between the tendency of the profit rate to decline, and the factors that counteract it: in other words, the permanent battle to reduce costs, increase sales and increase profits.

The hypothetical final result of the rising OCC would be full automation of the production process, in which case labour-costs would be near-zero. This is argued to herald the end of capitalism's functioning as both a profit generating economic system for capitalists, and as a social system, among other things because the capitalist system does not contain a means for distributing incomes other than that based on labour-effort. However, it is also possible that automation of material production displaces labour into the services sector. Provided sufficient income exists to purchase services, a service economy can grow.