Abstract The theory of the falling rate of profit is one of the most controversial parts of Marxian economic analysis. However, when severe and unpredicted crises occur it returns to the focus of attention as a possible explanation. In what follows I do not claim that the process of the falling rate of profit is the immediate cause of the present crisis. Rather, this trend is a process that involves several factors and contributes to the transformation of the economic system, in the long run shaping the institutional framework of capital accumulation. In the first section of this paper some data from the OECD Outlook database will be analysed. These data show that over the course of several decades, for many developed countries, there has been i. a fall in the output per unit of capital, ii. an increase in the productivity of labour, and iii. a reduction in the wage share of the net product. The interpretation of the tendency of the rate of profit to fall supported in this paper can explain those trends. In fact, it will be shown that the Marxian theory can be interpreted as a tendency of both the maximum rate of profit and the output per unit of capital employed in the economic system to decline, while the productivity of labour increases. As far as the explanation of the crisis is concerned, it will be noted that on the one hand this trend results in a decrease in the wage share of income, which in turn can generate a decrease in the aggregate demand. On the other hand, when the rate of actual profit falls, together with the output per unit of capital, reaction can stimulate a tendency to hoard and trigger speculative bubbles. The Marxian theory can be reconstructed as the description of a dynamic process in which technological change, an increase in the productivity of labour, and changes in the distribution of income mutually interact. Section 2 of this paper shows that a technological change that leads to an increase in the organic composition of capital, entails an increase in labour productivity and, at the same time, a decline in the maximum rate of profit in Sraffa’s standard system. When the fall of the maximum rate of profit is sufficiently sustained, the effective rate of profit must also necessarily fall. In section 3, we switch from the analysis of the standard system to the analysis of the actual one. The substitution of machinery for labour will be presented as the prevailing form of technical change in a Marxian framework, because of the necessity for capitalists to develop an ‘industrial reserve army’. Finally it will be shown that the process described also takes place in light of the so-called Okishio theorem, according to which a change of technology is not desirable if it does not lead to an increase in the rate of profit, when its adoption is generalised. However, the long-term growth in labour productivity associated with this type of technological change generally leads to an increase of real wages and the rate of profit eventually tends to fall. On the one hand, the process described generates problems of aggregate demand, depressing the wage share of income, and on the other fuels the ‘financialisation’ of the economic system and the outbreak of speculative bubbles, depressing the rate of profit.
Back to the future? the tendency of the (maximum) rate of profit to fall: empirical evidence and theory
PERRI, Stefano
2011-01-01
Abstract
Abstract The theory of the falling rate of profit is one of the most controversial parts of Marxian economic analysis. However, when severe and unpredicted crises occur it returns to the focus of attention as a possible explanation. In what follows I do not claim that the process of the falling rate of profit is the immediate cause of the present crisis. Rather, this trend is a process that involves several factors and contributes to the transformation of the economic system, in the long run shaping the institutional framework of capital accumulation. In the first section of this paper some data from the OECD Outlook database will be analysed. These data show that over the course of several decades, for many developed countries, there has been i. a fall in the output per unit of capital, ii. an increase in the productivity of labour, and iii. a reduction in the wage share of the net product. The interpretation of the tendency of the rate of profit to fall supported in this paper can explain those trends. In fact, it will be shown that the Marxian theory can be interpreted as a tendency of both the maximum rate of profit and the output per unit of capital employed in the economic system to decline, while the productivity of labour increases. As far as the explanation of the crisis is concerned, it will be noted that on the one hand this trend results in a decrease in the wage share of income, which in turn can generate a decrease in the aggregate demand. On the other hand, when the rate of actual profit falls, together with the output per unit of capital, reaction can stimulate a tendency to hoard and trigger speculative bubbles. The Marxian theory can be reconstructed as the description of a dynamic process in which technological change, an increase in the productivity of labour, and changes in the distribution of income mutually interact. Section 2 of this paper shows that a technological change that leads to an increase in the organic composition of capital, entails an increase in labour productivity and, at the same time, a decline in the maximum rate of profit in Sraffa’s standard system. When the fall of the maximum rate of profit is sufficiently sustained, the effective rate of profit must also necessarily fall. In section 3, we switch from the analysis of the standard system to the analysis of the actual one. The substitution of machinery for labour will be presented as the prevailing form of technical change in a Marxian framework, because of the necessity for capitalists to develop an ‘industrial reserve army’. Finally it will be shown that the process described also takes place in light of the so-called Okishio theorem, according to which a change of technology is not desirable if it does not lead to an increase in the rate of profit, when its adoption is generalised. However, the long-term growth in labour productivity associated with this type of technological change generally leads to an increase of real wages and the rate of profit eventually tends to fall. On the one hand, the process described generates problems of aggregate demand, depressing the wage share of income, and on the other fuels the ‘financialisation’ of the economic system and the outbreak of speculative bubbles, depressing the rate of profit.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
