Average Rate of Profit

Also known as “general rate of profit”. That is, the rate of profit of the aggregate social capital. It refers to the ratio of the surplus-value produced annually by the capitalist class to the aggregate capital advanced on social scale, and embodies the relations between functioning capitalists in the distribution of surplus-value.

The level of the average rate of profit depends on two factors: the unequal rate of profit due to unequal rates of surplus-value, turnover rates of capital and the organic compositions of capital in the various branches of production; the proportion of distribution of aggregate social capital among different branches, i.e., the relative amount of capital invested in each of the different branches. Thus, the average rate of profit varies considerably due to differences in the amount of capital invested in various branches of production, and is not a simple average of different rates of profit of each branch. If the rate of surplus-value and the turnover rate of capital of each branch are equal, then the higher the share of aggregate social capital in those branches with lower organic composition of capital, the higher will be the average rate of profit; conversely, if the share of capital in those branches with a higher organic composition of capital is larger, the lower will be average rate of profit.

The equalization of the average rate of profit is achieved in a continuous flow. As an average tendency of different rates of profit in various branches, the average rate of profit exists through the movement of equalization. The profits accrued to capitalists in each branch according to the average rate of profit are no longer individual profits but average profits (sum of the capitals advanced × average rate of profit). With the formation of the average rate of profit, the value of commodities in different branches of production is also transformed into price of production (cost-price + average profit).

Marx pointed out: “Assuming all other conditions, among them the value of the advanced constant capital, to be given, the average rate of profit depends on the intensity of exploitation of the total labor by the total capital.” This shows that wage-laborers are exploited not only by the individual capitalist who directly employs them, but also by the bourgeoisie as a whole, and that the average rate of profit reflects the relationship between the bourgeoisie and the proletariat, i.e., the relationship between the exploiter and the exploited.