6. The Falling Off in the Rate of Profit.

Simultaneously with this development, the quantity of the capital which the capitalist class applies productively shows a tendency to increase more rapidly than the exploitation of the working-class, that is to say, more rapidly than the mass of surplus which the latter creates.

To illustrate: Compare a spinner of a hundred years ago with a machine-weaver of today. How enormous is the capital required to enable the latter to work! On the other hand, the capital which the capitalist invested in hand-weaving was trifling in comparison. The exploited hand-spinner may have worked at home. In that case the capitalist paid him his wages and gave him the cotton or flax which he needed. In point of wages there has not been much change, but a machine-weaver consumes today in production a hundred times more raw material than the former hand-weaver; over and above that, how tremendous are today the buildings, power engines, looms, etc., necessary to carry on the industry.

There is still another thing to be considered. The only outlays of the capitalist who a hundred years ago employed a spinner were for wages and raw material, there was not then any fixed capital, for the cost of the spinning-wheel was too trifling to consider. He turned his capital over quickly, say every three months; as a result of this, he needed, to start with, only one-quarter of the capital which he used during the whole year. Today the capital invested in a spinning-mill for machinery and buildings is enormous. Even though the time within which the capitalist could get back the sum he pays out in wages and for raw materials were now the same as it was a hundred years ago, the time which it now takes him to get back the rest of his capital, which a hundred years ago he hardly needed, has become a very long one.

A number of circumstances work in the opposite direction. Among these the most important are the recently developed system of credit and the decline in the value of products, the latter of which is the inevitable result of the increase in the productivity of labor. But neither of these causes is sufficient to counteract the effect of the others. In all branches of production, in some slowly, in others rapidly, the quantity of capital necessary for production grows perceptibly from year to year.

Let it be assumed that the capital necessary for a certain industry a hundred years ago was $100, and that today the amount necessary is $1,000, and, furthermore, that the amount exploited from labor is now five times as large as then, i.e., that whereas the surplus which labor formerly produced was $50, today it is $250. In this case the quantity of the surplus has increased absolutely; nevertheless, in proportion to the quantity of capital invested, the surplus value has decreased. A hundred years ago this proportion was 50 per cent, today it is only 25 per cent. This instance is simply an illustration meant to point out a tendency.

The total amount of surplus yearly produced in this, as a capitalist country, increases rapidly; but still more rapidly grows the total amount of capital invested by the capital class in their establishments. If now it be considered that taxation and rent carry off yearly an ever larger portion of the capitalists’ surplus, the phenomenon may be explained that the quantity of surplus that will accrue to a certain amount of capital tends steadily to diminish, notwithstanding that the amount of exploitation of labor tends steadily to increase.

Accordingly, profit, that is to say, the portion of the surplus produced by labor which a capitalist retains, shows a tendency to decline in proportion to the quantity of capital he invests. Or, to put it another way, in the course of the development of the capitalist system of production, the profit which a given quantity of capital yields tends to go down. This, of course, holds good only on the average and during long periods of time. An evidence of this downward tendency of profit is the steady decline of interest.

It happens, therefore, that while the exploitation of the working-man tends to rise, the rate of capitalist profit has a tendency to sink. This fact is one of the most remarkable contradictions of the capitalist system of production – a system that bristles with contradictions.

Some there are who have concluded from this sinking of profits that the capitalist system of exploitation will put an end to itself, that capital will eventually yield so little profit that starvation will force the capitalists to look for work. This conclusion would be correct, if, as the rate of profits sank, the quantity of invested capital remained the same. This, however, is by no means the case. The total quantity of capital in all capitalist nations grows at a more rapid pace than the rate of profit declines. The increase of capital is a prerequisite to the sinking of profit, and if a capitalist’s investment has increased from one million to two, and from two million to four, his income is not reduced when the rate of profit sinks from 5 per cent to 4, and from 4 to 3.

The decline of the rate of profit, and likewise of interest, in no way implies a reduction of the income of the capitalist class, for the mass of surplus that flows into its hands grows constantly larger; the decline diminishes solely the income of those capitalists who are not able correspondingly to increase their capital. In the course of industrial development, it takes a constantly increasing amount of capital to support its owner with the “dignity of his class.” The quantity of capital requisite to free its owner from labor, and to enable him to live on the labor of others, becomes constantly larger. The sum which fifty years ago was a considerable fortune is today an insignificant pittance.

The decline of profit and interest does not bring on the downfall, but the narrowing of the capitalist class. Every year small capitalists are expelled from it and consigned to the same death struggle in which the small dealer, the small producer, the small farmer, the small concerns generally, are engaged – a death-struggle that may be more or less protracted, but which will finally end for them, or for their children, with downfall into the proletariat. Their efforts to escape their fate only hasten their ruin.

One often wonders at the large number of simpletons whom any knave can allure to intrust him with their money upon the promise of high interest. Those people are, as a rule, not the fools they seem; fraudulent undertakings are the last straws at which sinking capitalists grasp, in the desperate hope of making their small capital remunerative. It is not so much greed as the fear of poverty that blinds them.