This article is part of a longer (work in progress) reply by Steve Dobbs and Bruce Wallace to Arthur Bough (Boffy) and his recent articles in the Weekly Worker. Specifically, this article below deals with the meaning of the rate of profit in relation to Marx’s three volumes of Capital.

Unfortunately, it is not only Bough who attempts to muddy the waters on the question of the falling rate of profit. Clive Heemskirk of the Socialist Party EC, at a Socialist Party debate on 19th January 2014, said:

“It’s relatively clear how the LTRPF applies to an individual capital or individual sector, but it’s a different question for capitalism in it’s totality…. producing an average [rate of profit] between [very different] commodities is not particularly helpful.”

Heemskirk summons the bogeyman of different production times and realisation times (i.e. turnover time, which is equal to production time + circulation time, or to put it another way, the time it takes to produce and sell a commodity) in order to sow confusion and pooh-pooh the idea that such a thing as an average rate of profit could be useful, or even exist! Hence this article could equally apply to the CWI’s revisionism on the most important law of political economy, as well as the lone wolf Boffy.

The superscript number references in the article refer to links at the bottom of the article under the ‘Notes’ section.

Bough & Heemskirk’s Confusion over the rate of profit

Both of Bough’s previous articles1, 2 show immense confusion as to what the rate of profit is, which has no doubt confused many readers. It is the task of Marxists to explain their ideas in as clear and concise a way as possible. In this article, first we will explain Marx’ & Engels’ various definitions in as straight forward a way as possible, and then we will show how Bough muddles them up and gets them wrong.

Marx first defines the rate of profit for an individual capitalist, in Capital volume 3 chapter 2:

“The proportion of this surplus to the total capital is therefore expressed by the fraction s/C, in which C stands for total capital. We thus obtain the rate of profit s/C=s/(c+v)”3.  In the same chapter, Marx also says in relation the rate of profit:

“ [surplus value] appears as a surplus produced by capital above its own value over a year, or in a given period of circulation.” [our emphasis]


” In the formula s/C the surplus-value is measured by the value of the total capital advanced for its production, of which a part was totally consumed in this production and a part was merely employed in it.” [our emphasis]

So the rate of profit for an individual capital is measured across the total capital (C) advanced for a given period of production and the amount of surplus value (s) produced during that period. This period can be a day, a year or, would you believe it, a turnover period! It should be noted though, that the standard reference time is one year, as Marx and Engels remind us throughout Capital volume 3. Therefore, unless otherwise stated, the rate of profit is annual.

Turnover Troubles

In Chapter 4 of Capital Volume 3, written by Engels (as Bough so diligently points out), the effect of turnover time on the rate of profit for an individual capital is explored:

“Now let us take a capital A composed of 80c + 20v = 100 C, which makes two turnovers yearly at a rate of surplus-value of 100%. The annual product is then: 160c + 40v + 40s. However, to determine the rate of profit we do not calculate the 40s on the turned-over capital-value of 200, but on the advanced capital of 100, and thus obtain p’ = 40%.”4

In this example from Engels, we have a single capital with a total capital C = 100. The rate of surplus value per turnover is 100%, which means that the capital produces a surplus value equal to the variable capital, 20, every turnover period. Since the capital makes 2 turnovers per year, it produces 40s per year. Its [annual] rate of profit p’ = 40s/100C = 40%. If the capital had only made one turnover per year, then its rate of profit p’ = 20s/100C = 20%. Thus, we can see how decreasing the time it takes to turnover (i.e. increasing the speed of turnover) can increase the surplus value produced, and hence rate of profit of an individual capital. This is confirmed in another example by Engels further down the chapter:

“The direct effect of a reduced period of turnover on the production of surplus-value, and consequently of profit, consists of an increased efficiency imparted thereby to the variable portion of capital, as shown in Book II, Chapter XVI, “The Turnover of Variable Capital”. This chapter demonstrated that a variable capital of 500 turned over ten times a year produces as much surplus-value in this time as a variable capital of 5,000 with the same rate of surplus-value and the same wages, turned over just once a year.

It should be noted that Comrade Bough makes a complete muddle of his definition of profit rates. In his original piece, he says that “the general annual rate of profit… [is] set out in chapter 4.” [our emphasis] But in his most recent reply, Bough says “In chapter 4, Engels sets out the definition of the annual rate of profit, which differs from the rate of profit, because it specifically deals with the effect of the rate of turnover of the circulating capital.” [our emphasis].

His second attempt at grasping Capital volume 3 is the most correct, although only partially. As we showed above, the rate of profit is measured for a given capital over a given period of time. This period of time can be anything, although is usually one year. In Chapter 4, Engels shows how you can reach the [annual] rate of profit on the basis of starting with different variables in relation to the turnover period. However, if one already knows the surplus value produced in a year (s) and the total capital advanced (C), then this method is redundant for calculating the [annual] rate of profit. Bough shows a complete failure to understand the fundamentals of Capital volume 3, by making a false distinction between the annual rate of profit and the rate of profit, when they mean the same thing!

General Errors

Moreover, Bough’s initial assertion that Chapter 4 dealt with the general rate of profit is simply false. The general rate of profit is introduced in Chapter 9, and the hint is in the title “Formation of a General Rate of Profit (Average Rate of Profit) and Transformation of the Values of Commodities into Prices of Production” [our emphasis].

Despite the fact that various capitals within a given sphere (e.g. a branch of industry, or nation, or indeed planet!) have different organic composition of capitals and thus individual rates of profit, the monetary profit rates they receive tend to converge around an average. Here Marx shows how each capital within the sphere all receive the same average, or general, rate of profit, and not than their “individual” rate of profit discussed in the preceding chapters:

“Accordingly, the rates of profit prevailing in the various branches of production are originally very different. These different rates of profit are equalized by competition to a single general rate of profit, which is the average of all these different rates of profit. The profit accruing in accordance with this general rate of profit to any capital of a given magnitude, whatever its organic composition is called the average profit.”5

Obliterating Bough’s Turnover

Bough suggests that “[i]n chapter 9, describing the formation of a general rate, Marx uses this definition, but without specifically dealing with the effects of the rate of turnover.” [our emphasis]

Unfortunately for Bough, Marx does deal with the effect of turnover time [of individual capitals] on the general rate of profit:

“Since the general rate of profit is formed by taking the average of the various rates of profit for each 100 of capital invested in a definite period, e.g., a year, it follows that in it the difference brought about by different periods of turnover of different capitals is also effaced [i.e. wiped out!] [our emphasis].”

Regardless of turnover time of individual capitals (which may vary greatly), a general [annual] rate of profit still forms! However, Marx then says:

“But these differences have a decisive bearing on the different rates of profit in the various spheres of production whose average forms the general rate of profit”.

In other words, certain spheres of production may have higher profit rates than others due to differences in average turnover time. For example, retail has an average faster turnover than manufacturing. But this does not prevent a general rate of profit from forming across these two spheres, or the entire economy. Additionally, certain industries such as energy inherently have slow turnover times due to the massive amounts of fixed capital involved and the nature of them. Regardless, capitalists still expect an annual return on their investment:

Every 100 of an invested capital, whatever its composition, draws as much profit in a year, or any other period of time, as falls to the share of every 100, the Nth part of the total capital, during the same period. So far as profits are concerned, the various capitalists are just so many stockholders in a stock company in which the shares of profit are uniformly divided per 100, so that profits differ in the case of the individual capitalists only in accordance with the amount of capital invested by each in the aggregate enterprise, i. e., according to his investment in social production as a whole, according to the number of his shares.”

This is repeated again in Chapter 12 “Supplementary Remarks”:

“Average profit is the basic conception, the conception that capitals of equal magnitude must yield equal profits in equal time spans…

This conception serves as a basis for the capitalist’s calculations, for instance, that a capital whose turnover is slower than another’s, because its commodities take longer to be produced, or because they are sold in remoter markets, nevertheless charges the profit it loses in this way, and compensates itself by raising the price. Or else, that investments of capital in lines exposed to greater hazards, for instance in shipping, are compensated by higher prices. As soon as capitalist production, and with it the insurance business, are developed, the hazards [such as varying turnover times – SD] are, in effect, made equal for all spheres of production.”6 [our emphasis]

The Law as Such

In Chapter 13, Marx explains how accumulation of capital leads to an increasing organic composition of capital, starting in individual capitals but spreading to all main parts of the economy:

“…the gradual growth of constant capital in relation to variable capital must necessarily lead to a gradual fall of the general rate of profit.”7

The Law Marx refers to is therefore clearly in reference to the general rate of profit, the same one identified in Chapter 9. The general rate of profit is an average formed across multiple capitals, such as a particular sector in the economy, or a whole economy. In fact, Marx uses examples of the general rate of profit for entire countries:

“In an undeveloped country, in which the former composition of capital is the average, the general rate of profit would = 66⅔%, while in a country with the latter composition and a much higher stage of development it would = 20%.”

Comrade Bough makes a major blunder by refusing to acknowledge what is clearly expressed in writing, that this chapter [13] refers to a profit rate that is measured over 1 year. In his first article, he spuriously claimed that: “the definition in chapter 13 [of the rate of profit], where he sets out ‘The law as such’, is essentially equivalent to the profit margin, and based on the laid-out capital.”

In his more recent article, Bough repeats the same fallacy:

“However, in chapter 13, the analysis is conducted almost entirely on the basis of a rate of profit where the capital turns over just once during the year, and where, therefore, what is being described is the equivalent of the profit margin, p/k.”

Firstly, it is clear that the Law of the tendential falling [general] rate of profit is based on the total capital invested (i.e. advanced) during a period of time, as once again confirmed by Engels in Chapter 13:

The rate of profit is calculated on the total capital invested, but for a definite time, actually a year. The rate of profit is the ratio of the surplus-value, or profit, produced and realised in a year, to the total capital calculated in per cent.”

Hence Engels is in agreement with Marx, that the rate of profit is s/C, where s is the surplus value produced in a period of time (e.g. year) and C is the total capital advanced in that period.

Bough attempts to sow greater confusion by arguing that the Law refers to the monetary rate of profit p/k, where p is total profit made in a period and k is the sum of the cost-prices of the commodities sold during the same period, and not s/C, which is allegedly different.  Yet Bough is unable to understand that, at the aggregate level where the general rate of profit forms (as opposed to the individual rate of profit on a single capital), p/k and s/C are the same! This is made clear right at the beginning of Chapter 10 by Marx, which we suggest Mr Bough familiarises himself with:

“The capital invested in some spheres of production has a mean, or average, composition, that is, it has the same, or almost the same composition as the average social capital.

In these spheres the price of production is exactly or almost the same as the value of the produced commodity expressed in money. If there were no other way of reaching a mathematical limit, this would be the one. Competition so distributes the social capital among the various spheres of production that the prices of production in each sphere take shape according to the model of the prices of production in these spheres of average composition, i.e., they = k + kp’ (cost-price plus the average rate of profit multiplied by the cost price). This average rate of profit, however, is the percentage of profit in that sphere of average composition in which profit, therefore, coincides with surplus-value. Hence, the rate of profit is the same in all spheres of production, for it is equalized on the basis of those average spheres of production which has the average composition of capital. Consequently, the sum of the profits in all spheres of production must equal the sum of the surplus-values, and the sum of the prices of production of the total social product equal the sum of its value.”8 [our emphasis]

Bough then claims “Engels provides three examples showing the effect of the process by which the organic composition of capital rises, causing this rate of profit [p/k] to fall, but which at the same time causes the annual rate of profit [p/C] to rise, because the rate of turnover rises.”

We would agree that these scenarios identified by Engels are perfectly feasible because they all refer to rates of profit on individual capitals. The individual rate of profit in terms of capital value [p/C] can vary greatly from the rate of profit in terms of cost-price [p/k]! It is only across multiple capitals that the general rate of profit forms, but this is not what Engels is calculating!

What confounds Bough is that Engels, at the same time as comparing money and value profit rates, measures the monetary rate of profit over the turnover period, rather than a year. But after describing his three scenarios, Engels reveals that:

“In commercial practice, the turnover is generally calculated inaccurately. It is assumed that the capital has been turned over once as soon as the sum of the realised commodity-prices equals the sum of the invested total capital. But the capital can complete one whole turnover only when the sum of the cost-prices of the realised commodities equals the sum of the total capital [advanced]” [our emphasis]

In other words, the correct turnover period is when the sum of the cost-prices (k) is equal to the total capital advanced in that period (C)! Hence Engels eventually confirms, in a roundabout way, that s/C = p/K, which holds true at the aggregate level that the general rate of profit exists.

More Confusion

Bough spends about a third of his first article, under the sub-heading “Annual rate”, arguing that individual commodity values decline at the same time as the general rate of profit rises. He says “these falling profit margins create the potential for crises of overproduction, even as (and even because) the actual rate of profit – the general annual rate of profit – is rising, along with the mass of profit.”

Yet it is exactly because commodity values tend to decline (due to less living labour used in production) that, over time, the general rate of profit tends to fall! (since living labour is the source of profit).

Under the same heading, Bough claims to measure the “general annual rate of profit”… on a single capital! But this makes no sense, since the general rate of profit is an average of the rates of profit across multiple capitals!

What we believe Bough is attempting to (unsuccessfully) convey is the fact that individual capitalists employ new technology to produce and sell commodities at a lower cost-price, in order to reap the general rate of profit. The capitalist’s individual rate of profit has declined with the introduction of the technology by raising the organic composition of that capital. The capitalist is “rewarded” by taking a portion of the total surplus value at a rate higher than what he contributes, i.e. there is a redistribution of surplus value towards him because he receives the general rate of profit, which is higher than his individual rate of profit. However, as more capitalists introduce the same new technology in order to cut costs and raise profits, more individual capitalists have their rate of profit decline. In turn, this causes the general rate of profit to decline.

Hence, each individual capitalist’s search for higher profit rates inevitably leads to a falling general rate of profit when in the context of competition. Bough is stuck in the level of abstraction used in Capital Volume 2, not Volume 3 which deals with multiple capitals competing, the most concrete level of abstraction at where the general rate of profit forms.


1. ‘False premises, false conclusions’ Weekly Worker June 19

2. ‘Not in Awe of Experts’ Weekly Worker’ July 17









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