What Is an Average Profit Margin?

The average profit margin is also called "general profit margin". It is the ratio of the total surplus value produced each year to the total social capital advanced by the capitalist. The average profit rate is first formed by averaging the different profit rates of various departments. In order to chase profits, capitalists always transfer capital from sectors with low profit margins to sectors with high profit margins. Through competition and capital transfers, supply-demand relations and price changes are caused, and the profit margins of various production sectors tend to be equalized. Once the average rate of profit is formed, the profit obtained by the capitalist in each sector is no longer the surplus value produced by his own sector, but the share that each capital obtains in accordance with its proportion in the total social capital. This means that capitalists in different sectors reallocate surplus value in accordance with the principle of equal profit for equal capital. ^[1]

Average profit margin

Right!

The average profit margin is also called "general profit margin". It is the ratio of the total surplus value produced each year to the total social capital advanced by the capitalist. The average profit rate is first formed by averaging the different profit rates of various departments. In order to chase profits, capitalists always transfer capital from sectors with low profit margins to sectors with high profit margins. Through competition and capital transfers, supply-demand relations and price changes are caused, and the profit margins of various production sectors tend to be equalized. Once the average rate of profit is formed, the profit obtained by the capitalist in each sector is no longer the surplus value produced by his own sector, but the share obtained by each capital according to its proportion in the total social capital. This means that capitalists in different sectors reallocate surplus value in accordance with the principle of equal profit for equal capital. ^[1]

The level of average profit margin depends on two factors: one is the profit margin level of each sector, and the other is the amount of capital in each sector with different profit margins.

This kind of height

The average profit margin exists as an averaging trend of individual profit margins, which vary from sector to sector. Therefore, the formation and level of the average profit rate depend on two factors: individual profit rates of different industrial sectors; the relative amount (proportion) of capital invested in different industrial sectors, that is, the total social capital at the profit rate Different proportions of distribution between different industrial sectors. Therefore, the level of average profit margin depends not only on the level of individual profit margins in different industrial sectors, but also on the composition of total social capital: the average profit margin is not a simple average of individual profit margins, but the The investment weight is the weighted average of the individual profit margins with weights. Assuming other conditions remain the same, if the amount of investment in the lower part of the organic composition of the capital accounts for a large proportion of the total social capital, since it can control more live labor, it will squeeze more surplus value and thus have a higher average profit rate. On the other hand, if the amount of investment in the higher-organization sector accounts for a large proportion of total social capital, it can only control less live labor and squeeze less residual value, so the average profit rate will be lower.

Although commercial capital does not participate in the production of value and surplus value, it is responsible for the realization of commodity value and surplus value and is also a functional capital. Therefore, through competition between the industrial sector and the commercial sector, commercial capital will also participate in determining the general profit rate according to its proportion in total capital, and obtain the corresponding annual average profit, that is, commercial profit.

The investment of commercial capital is divided into two parts, one part is used to purchase goods from industrial capitalists, and the other part is used for circulation costs (including productive circulation costs and pure circulation costs). These two parts must obtain compensation through the sale price of the commodity (but not above the value of the commodity), and participate in the formation of the average profit rate as prepaid commercial capital to obtain the average profit. Capital invested in pure circulation costs belongs to non-productive costs in capitalist production. This cost must be compensated for the surplus product, which for the entire capitalist class is a deduction of surplus value or surplus product. Taking into account the pure circulation cost factor, the formula for calculating the completion pattern of the average profit rate should be

Average profit margin = total residual value-pure circulation costs / total industrial capital + total commercial capital

It can be seen that "in the process of scientific analysis, the formation of general profit margins started from industrial capital and their competition, and was later corrected, supplemented, and changed due to the involvement of merchant capital." (The Complete Works of Marx and Engels) 25, p. 320).

Complete works of Marx and Engels

Therefore, in a strict sense, it is necessary to understand the economic category of average profit rate and the specific formula for calculating average profit rate on the basis of the above completion pattern of average profit rate. In addition, the formation of the average profit rate in this completed form is the premise of the transformation of commodity value into production price.

The average profit rate reflects the relationship between exploitation and exploitation between the bourgeoisie and the proletariat. On the premise that all other conditions have been determined, the average profit rate depends on the degree of exploitation of total social labor by total social capital. Therefore, each industrial capitalist and commercial capitalist is directly involved in the exploitation of all socially employed workers by the total social capital and jointly determines the extent of this exploitation. This shows that hired workers are not only exploited by the individual capitalists who directly employ them, but also by the entire bourgeoisie as a class.

Results of average profit margin competition

The factors that affect the profitability of the capital sector we examined above will vary in time. These factors also apply to different industrial sectors that coexist in space, causing differences in the profitability of investment in different industrial sectors.

Due to the different organic composition of capital and capital turnover, the profit margins of different sectors are different. Capitalists in different production sectors, in order to obtain higher profit margins, compete around for favorable investment venues. The competition method is capital transfer, that is, capital is removed from profit The transfer of low-rate sectors to high-level sectors will result in changes in the production scale of each sector, which in turn will cause product supply-demand relationships and corresponding changes in product prices, which will make the profit margins of different sectors more consistent and form an average profit rate. The average profit margin is the ratio of the total social surplus value to the total social capital. It is formed by competition between sectors. The profit obtained by a certain amount of capital according to the average profit rate is the average profit; the same amount of capital obtains the same amount of profit.

We know that in the free competition of capitalism, there are both intra-sectoral competition and inter-sectoral competition. The intra-sectoral competition forms the social value of commodities and the profitability of the sector. On this basis, the same amount of capital requires the same amount of profit, which will inevitably lead to competition among capitals, that is, the competition of capital in different industrial sectors for more favorable investment venues. This competition is manifested not only in the transfer of capital from sectors with low profit margins to sectors with high profit margins, but also in the input of new capital into sectors with higher profit margins. The free transfer and investment of capital between various sectors has caused changes in the supply and demand of commodities and prices in various sectors. As a result, the different profit rates of various sectors have been transformed into the general profit rate of the whole society, that is, the average profit rate. The profit that belongs to the capitalist according to the average profit rate is called average profit.

Average profit margin formation process

It is actually the process of redistributing the surplus value of the whole society among the capitalists in various sectors.

The different profit margins of various departments are converted into average profit margins, so that profits are converted into average profit, which merely indicates a trend and cannot be considered as an absolute average of profits. Marx pointed out: "In the entire capitalist production, the general law as a dominant trend has always been only in an intricate and approximate way, as an average situation derived from constant fluctuations, but can never be determined. Works. "

The conversion of profits into average profits does not exclude that a few advanced companies in various sectors may still obtain excess profits. Because when we analyzed the formation of the average profit rate, we looked at each sector as a whole, and therefore premised on the average organic composition and average turnover rate of capital in each sector; as for the enterprises in the same sector, Differences in this regard existed at the time. In fact, it is inevitable that the profit rate of each enterprise caused by this difference is different. Therefore, a small number of advanced enterprises can obtain excess profits that exceed average profits, while some enterprises cannot obtain average profits, and only a majority of medium-level enterprises can obtain average profits.

In short, when profits are converted into average profits, their essence is still surplus value, but they are just the redistribution of the total surplus value among capitalists in different sectors. Therefore, the process of forming the average profit rate is the process by which capitalists in different sectors redistribution of surplus value through competition. The conversion of profit into average profit is the result of treating profit as the full payment of capital in advance, which is completely established and solidified conceptually. In this way, the nature of profit, its source, and the relationship between capital exploitation and wage labor are further covered up and distorted.