Average Profit

The profit made by capitalists in each branch of production, calculated on the basis of the magnitude of the capital advanced and at the average rate of profit. Average profit is the transmuted form of surplus-value.

Average profit is formed through competition between industries. Under capitalist conditions, the rate of profit of various branches of production varies due to the different organic composition of capital or due to the rate of capital turnover. Spheres with a higher organic composition of capital or a slower speed of turnover rate of capital have a lower rate of profit; conversely, the rate of profit is higher. Under the circumstances of different rates of profit in various branches, capitals of equal size do not yield equal profits, which is contrary to the nature of capital. In this way a transfer of capital takes place. Capital flows from branches with a lower rate of profit to branches with higher rates of profit. Such a transfer inevitably gives rise to changes in the proportion of production in the various branches, which in turn will lead to changes in the relation of demand and supply of commodities of each branch in the market, and ultimately to changes in the prices of commodities.

In branches which had a higher rate of profit, as a result of the influx of new capital, there is an expansion of production, an increase in commodities, a fall in the prices, thus the rate of profit necessarily tends to fall; and in branches which had a lower rate of profit, as a result of the withdrawal of numerous capitals, there is a contraction of production, a decrease in commodities, a rise in the prices, thus the rate of profit necessarily tends to rise. Capital is thus transferred in and out, constantly changing its distribution among the various branches, until it stops roughly at the point where each branch has roughly formed an average rate of profit. Once the average rate of profit is formed, the nature of capital can be realized, i.e., capitals of equal size yield equal profits.

From the point of view of the process of formation of average profit, it is essentially the process by which the surplus-value of the whole society is redistributed by the capitalists in each branch. Once the average rate of profit has been formed, those branches with a higher organic composition of capital or slower turnover rate of capital yield an average mass of profit which is higher than the mass of surplus-value created by this branch. Conversely, those branches with a lower organic composition of capital or faster turnover rate of capital yield an average mass of profit which is lower than the mass of surplus-value created by this branch.

From the point of view of the process of formation of average profit, it seems that the size of profit is only related to the amount of capital advanced, which further conceals the capitalist relations of exploitation.