Law of the tendency of the rate of profit to fall

The law of the tendency to fall in the rate of profit (Marx: Law of the tendency to fall in the rate of profit ) is understood to be a central Marxist theorem developed by Karl Marx in Volume 3, Section 3, of his main work, Capital . It states that in the capitalist economy there is a lawful tendency, i.e. due to the characteristics of the capitalist economy itself, to reduce the rate of profit in the overall economic average.

This law must be distinguished from ideas that the rate of profit tends to fall due to external circumstances, for example because natural resources are becoming increasingly scarce or because capital productivity “naturally” decreases, for example in accordance with a neoclassical production function . According to Marx, it is the logic of capital itself which leads to the law and which arises not in spite of but because of technical progress .

Tendency and crises

The fall in the rate of profit can be seen as the cause of periodically recurring crises , as a long-term trend, and finally as a trend that interacts with the crises. In this case, the tendency for the rate of profit to fall and the crisis cycle are mutually dependent.

requirements

Industrial production with great weight of machine use

The prerequisite for the fall of the rate of profit (as well as the cyclical fluctuations) is that production takes place industrially with the help of machinery .

Increase in labor productivity through increased use of machines per worker

The aim of capitalist production is to increase surplus value , to produce or increase relative surplus value . This is done by increasing the productive power of labor, labor productivity . For this purpose, the activities of human workers are transferred to machines, so that the extent to which machines are used per worker increases, the technical composition of capital increases. Marx assumes that the newer processes with more machine use are more expensive than the replaced ones and therefore require higher production and sales in order to reap the higher capital advance.

No macroeconomic planning

The capitalist companies seek to increase their profits independently of one another on their own responsibility, there is no central planning authority of the economy. It can therefore be that the added value created in the production process is not realized in the market, in the circulation process . The goods that are produced cannot be sold all or only at a discount.

Formation of the general rate of profit

Georg Lukács sees the possibility that capital can migrate to higher profit as a prerequisite and refers to the part of Volume III on Capital where Marx describes the development of the general rate of profit . In addition, Marx explains that the individual capitalists directly seek to reduce the amount of paid work in order to lower costs, but cannot see that this also reduces the unpaid surplus labor that creates surplus value . The latter does not directly affect the individual causer, who reduces paid work, but has a general effect on the capitalists because of the tendency towards equalization of the rates of profit and is therefore not taken into account in the calculation of the individual capitalists.

Explanation

According to Marx, the capitalist economy is characterized by internal contradictions. You express yourself u. a. in the fact that through the cooperation of all capitalists the rate of profit tends to fall on average, although each individual capital tries to increase its rate of profit. The main reason for the "tendency to fall" is that attempts to increase surplus-value production are accompanied by a tendency towards a decrease in variable capital (that is, the share of capital invested in labor) versus constant capital (the Marxian term for it is) "Increase in the organic composition of capital "). Since "free" wage labor, according to Marx, is the only source of surplus value - wage workers sell their labor for its value, but are forced to work longer or more than this value in the labor process - this will permanently reduce the rate of profit .

"Tendency" can mean that the overall economic rate of profit is actually getting lower and lower with some ups and downs, but a tendency can also mean that the rate of profit remains stable, but that there are other specific effects. The American Marxist Duncan Foley shapes the image of the car with a right-hand twist. If the driver tries to take countermeasures, the car drives straight ahead when viewed from the outside, but the driver tires more quickly, has a cramped neck, etc. From the outside, the profit rate may appear stable, but the number of companies is constantly decreasing, unemployment is rising, etc.

background

After the critique of political economy of Karl Marx only the labor of wage workers can be used as so-called "on the factors of the production process variable capital " value- creating and thus the purpose of capitalist commodity production are in compliance (see. Labor theory of value ). The factors bought from other capitalists, the material factors (slaves as unfree labor and full property of the capitalists are also included here), so-called " constant capital ", merely transfer their value to the product (also with the help of human wage labor , a so-called Free service of wage labor).

If a machine transferred more value to the end product than it is worth, then the capitalist selling this machine would have made a loss in favor of the buying capitalist. If it transferred less value, the capitalist buying this machine would have made a loss in favor of the selling capitalist. On the average of all such processes, the machines will transfer exactly their value.

As a result of technical development, on the one hand, these objective factors and, on the other hand, work such as planning, monitoring, and control, which cannot be clearly assigned to the end products, gain in importance and displace wage labor, which creates added value, from the production process. That means: modernization in order to achieve even more added value tends to dry up the very source of it.

In this context, for Marx, the economic essence of capital consists in accumulating and thereby developing the productive forces in order to keep increasing labor productivity. In advanced stages, the development of capital is repeatedly determined by crises and periods of stagnation . Within Marxism , however, it is controversial to what extent an inevitable decline of capitalism can be derived from this law. In contrast to purely mechanical varieties of a “ collapse theory ”, other Marxists rely on the “subjective” factor, whereby objective and subjective factors work together in the class struggle . There are revolutionary consequences of the "growing impoverishment of the masses" or learning processes of the workers, especially in connection with the recurring crises.

Forerunner and trailer

Maurice Dobb points out that along with the notion of a stationary state of the economy, the tendency for the rate of profit to fall was a common notion within classical economics. Even before Marx, Adam Smith , David Ricardo, and John Stewart Mill developed the idea that, at least under certain circumstances, the rate of profit must gradually decrease. But Marx rejected their theoretical deductions as incorrect, not generally valid, too superficial or inadequate. In the case of Smith, for example, he criticized the fact that the latter attributed the fall in the rate of profit directly to competition among companies. More and more companies would compete with each other more and more, which depresses the rate of profit. According to Marx, however, competition is only the external compulsion that “exequates” (enforces) the internal law.

Ricardo assumed in the basic rent theory that an increase in the population would lead to an expansion of agricultural production (after the rise in grain prices as a result of excess demand) on poorer soils. On the border land, the worst land still usable, the yields are just high enough to make a profit, while the landowner, because of his weak position, does not receive any rent as ground rent. With all better soils, the tenants' profit remains constant because of competition among themselves in favor of increasing rents for the lessors, because they now demand as lease the portion of the profits that exceeds the profit of the border tenant (the lessee of the worst land that can barely be used). The rate of profit falls accordingly, since a shrinking part of the surplus production goes to the agricultural tenants and an increasing part to the landowners.

Here Marx criticized the fact that technical progress could overcome such natural obstacles so that they could not act as a permanent reason for falling profits.

Marx's law bears at least a superficial resemblance to Keynes' law of the "decreasing marginal efficiency of capital " .

Summary

Where does the profit come from? Profit cannot come from capitalists bartering with one another, buying and selling goods between one another, lending and lending money to one another. It is true that the individual capitalist can cheat the other, but within the capitalists this is a zero-sum game . What one wins, the other loses.

It is different with wage workers . They sell their commodities, labor, at their value to the capitalists. For the capitalists this business is only profitable if the wage laborers work longer, produce more products than are necessary for their own self-preservation. The unpaid surplus work performed , the surplus product , is a free service to the capitalists; it is valued as the surplus value .

So added value can only be drawn from wage labor. The value of the machinery used is only transferred to production value via depreciation . Machines or their services are sold by capitalists to capitalists. If one capitalist gains something in the process, it is the loss of another capitalist. For the capitalists as a whole, no new value, let alone surplus value, can be created by buying and selling machines and their services. Surplus value can only be created because wage workers sell their labor to the capitalists on the condition that they create surplus value for them.

If the workers of one capitalist produce an above-average number of products in comparison to the workers of another capitalist, then this capitalist receives an above-average amount of surplus value, he receives an extra profit. So there is a certain incentive, even if the additional costs are taken into account, to invest more in machines than in buying labor - if this increases the productivity of workers enough to recoup the extra work for additional or better machines.

If, however, with technical progress , with automation , etc., more and more wage labor, which alone can create added value, is replaced by more and more machinery (constant capital), and more and more work is transferred to machines, that which is solely exploitable also takes away Only the profit-generating element, wage labor, tends to decline relatively. So, in the long run, the rate of profit, as the ratio of profits to the capital invested in the purchase of machinery, etc., falls. The profits can absolutely naturally continue to rise - and they can, just as more and better machinery is used also to rise at the expense of competitors remaining in the competition. But that would then be an increase in the rate of profit of one capitalist at the expense of many others - surplus profits - which does not change the general trend.

To the logic of the law

Considered in terms of value

The formula

The rate of profit p is the ratio of the surplus value generated (m) to the sum of the constant capital employed (c) and the variable capital employed (v) . Constant capital includes machinery, buildings, raw and auxiliary materials, and semi-finished products. The variable capital is valued at the wages for human labor.

{\ displaystyle p = {m \ over c + v}}

or after multiplying the right side of the equation in the numerator and denominator with the term and converting: ${\ displaystyle 1 / v}$

{\ displaystyle p = {{m \ over v} \ over {{c \ over v} +1}}}

The ratio of constant capital c to variable capital v is called the value composition of capital . Marx assumes that with the technical composition of capital , the composition of value of capital continues to rise, so that, according to the formula, the rate of profit must decrease if this is not offset by a corresponding increase in the rate of surplus value . ${\ displaystyle m / v}$

Critics point out that even Marx admits that the value composition of capital grows more slowly than the technical composition, since in the course of technical progress goods can be manufactured in shorter working hours, so that according to the labor theory of value, the value of goods also falls, which is constant Build capital. In addition, Marx even admits that " viewed abstractly " the increase in technical composition can be compensated for by the depreciation of constant capital, so - according to the critics - the assumption of an increasing value composition is not at all compelling. However, this objection is insufficiently justified, writes Klaus Müller , because it only focuses on the depreciation of constant capital. The value composition of capital is determined by four factors: the extent of the means of production employed, the amount of labor employed, the value per unit of production means and the value per unit of labor. Technical progress and increase in productivity not only reduce the value of each means of production, but also that of the means of consumption and thus that of the commodity labor. If one accepts an increase in the technical composition, then an increasing value composition would only then not be compulsory if the value per means of production (the value per unit of constant capital) falls more than the value of the means of consumption (the value per unit of variable capital) that the changed relation between the two sizes compensates for the influence of the increasing technical composition on the profit rate. The assumption that the productivity and value development of the means of production and consumption are so different is, according to Müller, not plausible, so that taking into account not only the depreciation of constant capital but also that of variable capital, Marx's justification of the tendency of the rate of profit to fall is logical and is consistent. In the following, the law is not shown calculated in terms of values, as usual, but also examined from the material side of the production process.

Acquisition costs and replacement costs

Rate of profit after acquisition cost

Profit m is equal to the value of production for a period minus the cost in that period of wages v to be raised by the workers to buy labor-power and the cost of means of production c to be bought by other capitalists. For the purchase of labor and means of production, the costs incurred in their acquisition are invoiced to the acquisition costs . ${\ displaystyle c + v + m}$

Assume that all capital components have the same turnover rate of one period. The costs c and v are paid in advance at the beginning of the period. The rate of profit can then be calculated using the above formula. The acquisition costs at the beginning of the period would be invoiced for the purchase of labor and means of production.

Profit rate after replacement costs

In order to maintain the inventory or to maintain the competitiveness of a company, the costs that have to be paid for the replacement must be applied, not the historical acquisition costs that were to be paid in the past. A company would pay off richly in the case of inflation, for example, if it used the past low acquisition costs to calculate its rate of profit and not the higher replacement costs that can actually be expected .

Means of production can of course also become cheaper if they can be produced more cheaply in the course of technical progress. The same applies if prices do not rise in general, as in inflation , but fall in general, as in deflation .

Assume that all capital components have the same turnover rate of one period. In order to obtain profit, the cost of wages v and means of production c are deducted from the value of production, but now not at their acquisition costs, but at their replacement costs at the beginning of the next production period. This rate of profit calculated according to replacement costs is higher than that calculated according to acquisition costs if, in the course of technical progress, the means of production and also the commodities that make up the consumption of the workers can be produced more cheaply, so that wages v without affecting the standard of living Workers diminished, can be lowered. ${\ displaystyle c + v + m}$

Falling rate of profit after replacement costs

It is conceivable that the capitalists increase the rate of profit, calculated according to acquisition costs, precisely by investing more and more in the latest expensive technologies and this to an extent that an increasingly larger part of the value of production is used as constant capital c for the means of production at the beginning of the next period new technology is spent. They have to do this if the other capitalists do the same, because otherwise they would not be in possession of the latest production techniques and would fall behind in the competitive struggle. The expenditures for constant capital c are now "replacement costs", however not in the sense that a technically identical replacement is purchased for the old means of production, but in the sense that competitiveness is maintained by purchasing the technically better but more expensive means of production Need to become. ${\ displaystyle c + v + m}$

The rate of profit calculated according to these replacement costs is getting smaller and smaller. Marx assumed that this tendency tends to prevail, so that there is a tendency to fall in the rate of profit (calculated according to the technologically necessary replacement costs). If a company wants to keep up in the technical race, it has to raise an ever larger share of its income as constant capital for the latest technology. In the course of technological development, the replacement costs of the means of production rise, now understood as the costs that arise if the company wants to keep up with the competition. The remaining part of the capital to be invested is getting smaller and smaller. The rate of profit tends to fall because of technical progress. Critics argue that this option is not mandatory. Perhaps there is technically no possibility of increasing the profit rate calculated according to acquisition costs by expanding the expenditure for constant capital c from period to period so much that the profit rate calculated according to replacement costs - in the sense of keeping up in the technological race - falls. However, this would be an external obstacle that tends to be overcome if it is in the interests of individual capitalists.

There is a conflict of objectives for the economy as a whole. The greatest increase in labor productivity is that an ever larger part of the available capital is invested in the form of constant capital c, and an ever smaller part in the form of variable capital v. However, this means that fewer and fewer additional jobs are being created.

Considered materially

Two terms:

Technical composition of capital (TZK): number (or mass) of means of production per worker.

Labor productivity : production per worker.

With unchanged production technology, TZK and labor productivity remain unchanged. Profit is used to employ more workers and more means of production in accordance with the technically given TZK.

One worker - one shovel ...

... a worker - a bucket wheel excavator - this is how the TZK increases

Marx assumes that technical progress goes hand in hand with the fact that the profits are used to increase the TZK. However, this is then at the expense of the number of workers employed. For the capitalist, increasing the TZK is only profitable if he can achieve a higher level of production than if the old production technology was retained. This means that the increase in TZK by a certain percentage must lead to an increase in labor productivity by an even higher percentage. Marx assumes that this tends to be the case permanently. To the extent that everyone increases the TZK, total employment grows more slowly, can stagnate or even shrink.

But then the individual rationality of the individual capitalists comes into contradiction with the collective rationality of the overall system ( rationality trap or competition paradox ). On the one hand, production techniques with higher TZK and higher profit rates are introduced; on the other hand, existing older production facilities with lower labor productivity and lower profit rates are devalued ( moral wear and tear ). If one subtracts this moral wear and tear from the profits, the profit rate (after subtracting the moral wear and tear) falls on average.

If this assumption is valid, then an ever larger part of the profits is needed from the outset to increase the TZK, otherwise the capitalist would lose his competitiveness. This part of the profits represents costs from the outset in order to remain competitive. One could describe this as a kind of moral wear and tear, which does not refer to the devaluation of older investments (moral wear and tear ex post), but to the current profits, as moral wear and tear in advance, moral wear and tear ex ante.

Perhaps the decisive factor is less the falling rate of profit than the fact that rational behavior on the part of individual capitalists means that too few jobs are created in the course of “rationalization investments”, and that employment can even shrink. In addition to the Industrial Reserve Army, this leads to a growing "Lazarus layer".

This scenario can be represented using a function of technical progress. An increase in the TZK leads to a disproportionate increase in labor productivity, as shown in the figure, whereby it is assumed here that this only applies from a growth rate of the TZK of over 1%. If this is the case, the highest possible increase in the TZK pays off for the capitalists; they will invest all their profits in increasing the TZK, not in creating additional jobs.

Nicholas Kaldor, on the other hand, assumes that the function of technical progress "behaves well". With him, TZK growth rates above a certain value only lead to disproportionate increases in labor productivity, so that the increase in TZK for the capitalists is only up to a certain rate. Any additional profits that are available can then be used to create additional jobs.

Criticism of the law

Okishio theorem

See detailed article under Okishio's theorem

The Japanese economist Nobuo Okishio tried on the basis of the neo-Cardian school or on the model developed by Piero Sraffa to prove that under the assumptions made by Karl Marx

the labor input is reduced
the TZK is increased
the real wage of the workers remains constant in the sense that the wage is measured in such a way that the workers can only afford a certain basket of consumer goods for each unit of work performed
the new technology is only introduced by an entrepreneur if it leads to a higher rate of profit for him (at least initially)

not only temporarily for the pioneering entrepreneur who is the first to introduce the new production technology, there is an increase in the rate of profit, but also permanently, when the new production technology has generalized in the respective industry, the general rate of profit increases. This Okishio theorem thus contradicts the law of the tendency of the rate of profit to fall.

Critique by Michael Heinrich

According to Michael Heinrich , Marx tries to prove the law in three variants, but no variant can ultimately provide the proof.

First variant

In variant 1 with the formulas

{\ displaystyle p = {m \ over c + v}}

or

{\ displaystyle p = {{m \ over v} \ over {{c \ over v} +1}}}

Marx wants to show that if the ratio of constant to variable capital c / v increases more and more, the rate of profit must ultimately decrease, because this quantity is found in the denominator of the second formula. However, this result only occurs if the value composition c / v grows faster than the value-added rate m / v (in the numerator). "But that this is the case does not go without saying, but has to be shown first."

Second variant

Marx also argues like this:

{\ displaystyle p = {{e \ cdot N} \ over c + v}}

where N is the number of workers employed and e is the surplus value per worker. If the total capital input c + v in relation to the number of workers N increases more and more, because the input of constant capital c increases more and more, the rate of profit must finally decrease. But even this only applies if c per worker actually increases more and more. However, since technical progress also lowers the value of goods that can be assigned to constant capital, this is not certain.

Third variant

The starting point is the relationship:

{\ displaystyle {m \ over c + v} <{v + m \ over c}}

The fraction on the right becomes smaller and smaller the larger c in the denominator becomes. So the left fraction, the rate of profit, must also fall. But: "Whether the value of c will ultimately increase or not depends on whether or not the increased amount of means of production is compensated for by being cheaper." So again, technical progress could lower the value of goods that can be assigned to constant capital, that an unlimited increase in c cannot be taken for granted.

Newer approaches

Geert Reuten and Michael Williams

In response to critical objections, newer approaches to justifying the law have been developed. According to the approach of Geert Reuten and Michael Williams , the profit rate fall results because more and more newer companies are pushing into the market, so that supply rises above demand and thus depresses prices and the average profit rate . It is rational for the newer firms to enter the market because the latest firm has on the one hand the highest technical composition of capital , the greatest capital expenditure per worker, but on the other hand the highest labor productivity , the highest output per worker, and the highest rate of profit in comparison to the already existing companies. If, however, the overall market does not grow accordingly - so the assumption - the average rate of profit for the industry will fall, with the newest companies showing the highest rate of profit in comparison - the market entry of the new ones remains rational.

Reuten and Williams derive a wave-like movement from this. The range of differently profitable companies becomes narrower when more and more less profitable companies are pushed out of the market. The centralization of capital occurs . The remaining large companies, including start-ups, initially have few opportunities to push the remaining similarly strong competitors out of the market through technical progress, which means an increase in the technical composition of capital. Technical progress is hoarded in the drawers. Finally, if enough new knowledge is available, this is suddenly implemented through new investments, and the companies begin to diverge again in terms of labor productivity and profitability. The tendency towards a fall in the rate of profit sets in again, as there are now again incentives for new companies to force their way into the market at the expense of existing companies.

John R. Bell

According to John R. Bell , the tendency of the rate of profit to fall cannot simply be deduced from the mathematical formulas, according to which the higher the rate of surplus value , the higher the rate of profit and the lower the higher the organic composition of capital . But in the course of capitalist accumulation , there is a tendency for the rate of profit to fall over and over the crisis cycles. In the upswing, the rate of surplus value comes under pressure due to a shortage of labor, which the capitalists answer with technical progress , which Bell calls synonymous with an increase in the technical composition of capital . In the long term, according to Bell, the rise in the rate of surplus value cannot offset the rise in the organic composition of capital. Bell interprets the increasing organic composition of capital as increasing detour production, a term that goes back to Eugen Böhm von Bawerk . Ultimately, the rate of profit tends to fall asymptotically towards a constant value.

Paul Sweezy

The US Marxist Paul Sweezy warned against a "FROP fetishization" (FROP = falling rate of profit). He was not convinced of the increase in the organic composition of capital . Sweezy followed approaches such as those developed by Michał Kalecki , Josef Steindl and, similarly, John Maynard Keynes . With Kalecki, as with Marx, there is a process of centralization of capital , the markets are ruled by oligopolies . The oligopolies are able to enforce higher mark-ups on the unit costs, in Marxist terms, the rate of surplus value increases. The added value is thus produced, not yet realized, the additional product has not yet been sold. The investment demand of companies comes into consideration as demand if the consumer demand of the capitalists is disregarded in the classic way . At Kalecki, investments depend on profit expectations, which in turn are determined by past profit developments. The economic cycle shows that the actual profits of a period are as high as the investments of that period. So investment demand depends on past investments. If the rate of surplus value increases more than the investment demand, i.e. if the supply is greater than the demand, there will be a decline in production, similar to Keynes, until the profits correspond to the investment demand. Sweezy interprets this explanatory approach as a tendency to rise in the rate of surplus value and expects capitalism to stagnate. The state can try to close the demand gap with its own demand, with Sweezy this is mainly arms expenditure (see also Permanent Armaments Industry ).

John Maynard Keynes

Keynes , too, expects stagnation tendencies, which result from the “falling tendency towards consumption”. An ever smaller proportion of the additional income is used for consumption. This can be explained with increasing saturation of needs, but in Marxist terms as an increasing rate of surplus value. This goes hand in hand with a declining share of wage income, which in the economy as a whole leads to lower consumer demand, because consumer demand from wage income according to the classic or Keynesian savings function is higher than from profit income. From a Keynesian perspective, government demand can close the demand gap or increase workers' wages. However - according to a Marxist counter-criticism - the workers would then be paid more than the value of the workforce . The need to work would become weaker, and the workers would then, out of caution, save larger parts of their income, so that the demand gap could not be closed in this way.

Michael A. Lebowitz

Michael A. Lebowitz - following Sweezy - focuses on the contradiction between supply (production) and demand (realization, circulation) , based on Marx's remarks in Volume III of Capital . Supply tends to exceed demand. Lebowitz emphasizes the Marxian concept of the (fundamentally surmountable) "barrier" in contrast to the insurmountable limit. In the course of technical progress, on the one hand, production per worker is increased ( supply ), but at the same time, by saving manpower, demand , consumer demand, of workers is depressed. In purely arithmetical terms, supply and demand could be brought into line with one another in the economy as a whole, but since capitalism is not planned as a whole and the individual capitalists pursue their individual interests and do not pay attention to an overall economic equilibrium, crises arise and the rate of profit tends to fall. In the course of the threatened decline in the rate of profit, the capitalists invest more in the sale of goods, for example in advertising , in a microeconomic rational way, but a burden for the economy as a whole. Lebowitz emphasizes a " dialectical " approach, the capitalist process must be viewed as a " totality " (cf. pp. 104ff.). The constant crises of the capitalist process, even if they are overcome economically again and again, lead to changes in the consciousness of the workers or the proletariat , which ultimately becomes an insurmountable limit for capital (p. 127).

Lucas Zeise

According to Lucas Zeise, the law is suitable to explain crises ( Marxist crisis theory ), but not a long-term downward trend.

Alfred Müller and Stephan Krüger

Cycle and tendency in Alfred Müller

With Alfred Müller, the law explains not only the trend, but also the cycle of capitalist development.

The key is the production of relative added value . The relative added value is increased by "machine technical progress" (Müller). The law of the tendency of the rate of profit to fall therefore presupposes production with machines which, in the course of technical progress, are replaced by ever more effective machines. Marx assumes that the newer machinery is more expensive than the old one. They can only develop their unit cost-reducing effect if there are high sales figures, because the high acquisition costs of the machines can then be distributed over many products as part of the capital advanced. Here Müller draws on arguments from Marx and Engels' wage labor and capital published in 1849 .

The starting point for a cycle is a depressed rate of profit. It forces the capitalists to introduce new production techniques with newer, more expensive machines, investments in rationalization, whereby the technical composition of capital is increased. As with Joseph Schumpeter , innovations that appear frequently are the starting point of a cycle. The capitalists who introduce the new processes and machines first gain market shares at the expense of the rest because they can produce at lower unit costs . This forces the other capitalists to adopt these production techniques themselves and to buy new machines for their part. There is an upswing carried by the investments, which goes hand in hand with expansion investments . This upswing will come to an end when it finally turns out that overall more capacity has been built up than there is market demand. It must be taken into account that there are time lags , i.e. time delays, between the decision to invest, the completion of the investment and the sale on the market of the products manufactured with this investment .

So it turns out that not all capitalists can produce at the limit of their machines' capacity. However, a higher rate of profit for the individual capitalists would only have arisen with high sales volumes, since the higher fixed costs associated with the new machines would then have been distributed over many products. But this does not happen because the individual capitalists pursue their own interests and introduce the machines and production techniques associated with higher fixed costs without mutually agreeing on the total demand. As a result, because of the high fixed costs of the machines, the overall economic average rate of profit falls, so that individual capitalists begin to use new production techniques and new machines with an even higher technical composition (investments in rationalization ). The cycle begins again. The macroeconomic average rate of profit not only fluctuates with the cycle, but also tends to fall across the cycles. The cycles are the mechanism by which the long-term law prevails.

Differentiation from Joseph Schumpeter

For Joseph Schumpeter , the starting point of the business cycle is a state of equilibrium, which, however, encourages market participants to innovate with extra profits, which then disturb the equilibrium. In the following upswing, the imitators take over the successful innovations (innovations) until the extra profits have competed away and a new equilibrium without growth has developed, which as the end point of the cycle is also the starting point of a new cycle.

Schumpeter rejects the attempt to explain the boom as a consequence of the depression and then the depression as a consequence of the boom as "perpetuum mobile reasoning". With Müller, on the other hand, in contrast to Schumpeter, the starting point is not a state of equilibrium, but rather “depression”, due to over-accumulation there is a depressed rate of profit, which forces innovation. The innovators receive extra profits at the expense of the rest. This forces the rest to imitate the innovations. According to Müller, this leads to a temporary upswing. To the extent that the imitators take over the innovations with higher rates of surplus value, the extra profits dwindle and the higher capital advances for fixed capital remain. A new ratio of surplus value production and capital stock, which is less favorable than before the upswing, is emerging, which as an imbalance triggers a new surge in innovation.

Stephan Kruger

The contradiction in the production of relative surplus value named by Alfred Müller - an increase in the rate of surplus value on the one hand with an increase in the composition of capital on the other hand - leads to an ever lower growth rate in productive employment ; ultimately employment can also shrink. This tendency is more fundamental than the actual fall in the rate of profit. The total mass of productive labor forms the upper limit for the mass of surplus value. At first this will increase. Krüger describes this phase of the capitalist economy as "accelerated accumulation". Ultimately, productive employment increases less and less or even shrinks, so that the mass of surplus value can no longer be increased, then the capitalist economy enters the phase of not only cyclical but now “structural over-accumulation ”.

Cyclical over-accumulation situations mark the end of the various business cycles of the capitalist economy. The business cycle changes its nature depending on which phase the capitalist economy is in. In the phase of structural over-accumulation, the capitalist economy tends to remain in stagnation .

Numerical example

The following numerical example is intended to illustrate the law from the material side, not from the value side. The numerical example is based on the assumption that supply equals demand. A “crisis-free” course of capitalism is thus assumed. The example is more theoretical than empirical.

In period 1 € 100 should be invested in wages, i.e. in variable capital A and € 300 in constant capital K. This results in an output Y worth € 500. One euro is the price for a good, either a consumer good for a unit of work or an investment good.

A technical composition of the capital (TZK) K / A of 3.0 and a labor productivity Y / A of 5.0 are calculated . The output, the income from the sale of 500 goods, of 500 € will be spent in full on labor A and means of production K in the next production period. Production, output, is fully used as input in the next period, be it as consumer goods for the workers, or as capital goods. The assumption is made that the supply meets an equally high demand, there is equilibrium supply equals demand.

In the next period the TZK is to be increased by 11% (growth factor 1.11). So that this pays off from a microeconomic point of view, it is assumed that labor productivity increases not only by 11%, but by 11% plus 1%, by a total of 12.1% ( growth factor 1.11 times 1.01 = 1.121). Otherwise the capitalist would be better off if he stayed with the old technology, i.e. with the unchanged TZK. This assumption takes Karl Marx, Volume III of Das Kapital , MEW 25, p. 275, into account: "No capitalist applies a new mode of production, no matter how much more productive it is or no matter how much the rate of surplus value it increases, it voluntarily applies it, as soon as it reduces the rate of profit. "

If the increase in TZK has paid off for the capitalists in this way, they will want to increase the TZK further in the next period, namely - this is the assumption now - not only in the amount of the achieved increase in labor productivity of 12.1%, but still once by an additional 11%, i.e. by a total of 24.4% (growth factor 1.121 times 1.11 = 1.244).

If you continue to write the time series according to this pattern, the result is that initially the commitment to work is continuously increased, but finally at an ever weaker pace. The peak of employment is reached in period 4. According to this, the TZK can only be expanded under the assumptions made here if the total employment is reduced at the same time.

In purely mathematical terms, the series can be continued. Marx (and Marxists like Henryk Grossmann ) usually assume that the increase in TZK also requires ever greater employment in the individual companies, so that at the latest when employment shrinks as a whole, a strong centralization process increases . This also changes the character of the competition.

table

A: Committed to work
K: Use of capital
Y: output
N / A: technical composition of the capital
Y / A: labor productivity
W (...): growth rate in%

In the numerical example, a wage per worker C / A or consumer goods per worker of 1 is assumed. The output Y of 500.0 in the first period is used in the next period for 115.5 consumer goods C, which the 115.5 workers receive as wages and for 384.5 capital goods K, which serve as means of production. This continues from period to period.

period	K	A.	Y	N / A	Y / A	W (K / A)	W (Y / A)
	€	€	€		€	%	%
1	300.0	100.0	500.0	3.0	5.0
2	384.5	115.5	647.3	3.3	5.6	11.0	12.1
3	521.5	125.8	886.6	4.1	7.0	24.4	25.7
4th	755.8	130.7	1297.9	5.8	9.9	39.5	40.9
5	1168.6	129.2	2026.8	9.0	15.7	56.4	58.0
6th	1906.6	120.2	3339.7	15.9	27.8	75.3	77.1

The table shows how output Y and the use of means of production K increase ever faster, while the use of work A only increases up to period 4 and then decreases.

discussion

The decisive factor for the result is that the companies increase TZK more than labor productivity was increased in the previous period, the rationality of which is guaranteed by the fact that labor productivity increases more strongly than TZK has been increased (individual rationality). In the table, the increase in labor productivity in the respective period (in the respective line) is always greater than the increase in TZK (individual rationality). The increase in TZK in a period is always greater than the increase in labor productivity in the previous period (in the higher line). This leads to collective irrationality, the rationality trap .

The latter may be seen as an arbitrary assumption. But if it is true that an increase in TZK leads to an even higher increase in labor productivity, there are no limits for companies. There is only one external limit in question, according to which the TZK cannot be increased at will for some technical reason. If, for example, Nicholas Kaldor, with his function of technical progress, claims that higher rates of increase in TCC have a gradually diminishing effect on labor productivity, this can also be viewed as an arbitrary assumption in order to be able to represent balanced capitalist growth, especially since bourgeois economists themselves have this assumption "Well-behaving" - just with regard to desirable balance properties - award.

literature

Marxist contributions advocating the law

Heinz-J. Bontrup : Labor, Capital and State. A plea for a democratic economy. 4th edition. PapyRossa-Verlag, Cologne 2011, ISBN 978-3-89438-326-8
Heinz-J. Bontrup: On the secular development of return on capital. In: WSI-Mitteilungen. 53rd year, issue 11/2000, pp. 718-725.
Heinz-J. Bontrup: wages and profits. Oldenbourg, Munich / Vienna 2000, ISBN 3-486-25164-3 .
Alan Freeman: Price, value and profit - a continuous, general, treatment. In: Alan Freeman & Guglielmo Carchedi (eds.) Marx and non-equilibrium economics. Edward Elgar, Cheltenham / Brookfield 1996 on the Internet at the University of Munich .
Henryk Grossmann : The law of accumulation and collapse of the capitalist system. Leipzig 1929 (newly published: Archive Socialist Literature 8, New Critique Verlag, Frankfurt 1970, ISBN 3-8015-0065-9 ).
Christoph Henning: Translation problems. An epistemological plausibility check of Marx's law of the tendency of the rate of profit to fall. In: Marx-Engels-Jahrbuch 2005. Akademie, Berlin 2005, pp. 63–85.
Klaus Peter Kisker : Structural over-accumulation and crisis of gainful employment. In: Z. No. 31, 1997 ( PDF; 35 kB )
Stephan Krüger: General theory of capital accumulation - business cycle and long-term development trends. Critique of Political Economy and Analysis of Capitalism. Volume 1. Hamburg 2010, ISBN 978-3-89965-376-2 .
Alfred Müller: The Marxian business cycle theory. An over-accumulation theoretical interpretation. PapyRossa Cologne, 2009 (dissertation 1981)
Anwar Shaikh: Capitalism . Competition, Conflict, Crises . Oxford 2016

Marxist contributions that tend to reject the law

Brodbeck, Karl-Heinz: Substance of value, exploitation and tendency of the rate of profit to fall . Yearbook of the Economy of Eastern Europe. tape 9.1 , 1980, pp. 35–60 ( Online [PDF; 5.3 MB ]).
Foley, Duncan K .: Understanding Capital: Marx's Economic Theory. Harvard University Press 1986. ISBN 0-674-92088-0 .
Heinrich, Michael : The science of value . Westphalian steam boat, 3rd edition 2003. ISBN 3-89691-454-5 .
Okishio, Nobuo , Technical Changes and Profitrate (1961, German in: HG Nutzinger / E. Wolfstetter [Ed.] The Marxian theory and its criticism, 2 vol., Ffm., 1974).

Empirical representations

Robert P. Brenner : Boom and Bubble. The USA in the world economy. VSA-Verlag Hamburg 2003. ISBN 3-87975-886-7 .
Nikolaus Dinkelacker / Harald Mattfeldt : Trend and component analysis of the rate of profit for Germany from 1850 to 1913. Hamburg 2005, Discussion Paper03 (PDF; 337 kB), ZÖSS .
Doug Henwood: After the new economy . The New Press, London - New York, 2003. US Rate of Profit 1952-2002, p. 204.
Harald Mattfeldt : Trend in the rate of profit falling? On the macroeconomic profitability development in the Federal Republic of Germany. Hamburg 2005, discussion paper 01 (PDF; 276 kB), ZÖSS .
Harald Mattfeldt : On the method of determining the profit rate. Comments on the empirical evidence of the 'secular development of return on capital' Hamburg 2006, Discussion Paper09 (PDF; 567 kB), ZÖSS.
Jan Priewe : Crisis cycles and stagnation tendencies in the Federal Republic of Germany - The crisis theory debate. Pahl-Rugenstein Verlag, Cologne 1988. ISBN 3-7609-1207-9 .
Michael Roberts: The Great Recession. Profit cycles, economic crisis A Marxist View. 2009 ISBN 978-1-4452-4408-2 Open Source
Weiß, Thomas: Returns on Real Capital in Historical Comparison - Germany in a Downward Trend ?, in: WSI-Mitteilungen 2015, 68 (4), pp. 280–289
Weiß, Thomas: The rate of return on capital in Germany - an empirical study. Presentation at: 19th FMM Conference, “The Specter of Stagnation? Europe in the World Economy ”Berlin-Steglitz, 22-24 October 2015

Non-Marxist Literature

Lutz Arnold: Growth Theory. Vahlen-Verlag, Munich 1997.
“The Marxian law of the tendency of the rate of profit to fall” by Hans-Werner Sinn , Zeitschrift für die total Staatswissenschaft 131, 1975, pp. 646–696 PDF
Sraffa, Piero : Goods production by means of goods. Afterwords by Bertram Schefold . (1976 [first publication 1960]), Suhrkamp-Verlag, Frankfurt / Main.

Web links

Commons : Rate of profit - collection of pictures, videos and audio files

Individual evidence

↑ ^a ^b Lucas Zeise: Not a secular trend, but a cyclical phenomenon - On the interpretation of the law of the tendency of the rate of profit to fall. Marxist sheets issue 6, 2009.

↑ Alfred Müller, p 378ff.

↑ Stephan Krüger, p. 408ff., P. 414f.

↑ Stephan Krüger, p. 414f.

↑ Stephan Krüger p. 144, reference to MEW 23, p. 412

^ Alfred Müller, p. 178, here reference to wage labor and capital , MEW 6, p. 418

↑ Alfred Müller, p. 103f.

↑ Alfred Müller p. 52

↑ See Stephan Krüger p. 272

↑ Cf. Karl Marx, Das Kapital III, MEW 25, p. 196 “(Only where production is under real, predetermined control of society, does society create the connection between the amount of social working time, related to the production of certain articles, and the extent of the social need to be satisfied by these articles.) "

^ Georg Lukács (1972): Prolegomena. On the ontology of social being, 1st half volume, edited by Frank Benseler, Darmstadt and Neuwied; Georg Lukács, Prolegomena. On the ontology of social being, 2nd half volume, in connection with the Lukács Archive Budapest edited by Frank Benseler, Darmstadt and Neuwied 1986. p. 153 (can be downloaded from the Internet)

↑ Cf. Karl Marx, Das Kapital III, MEW 25, p. 181 “What the capitalist and therefore also the political economist sees is that the part of paid work that falls on the commodity per piece is related to the productivity of the Work changes and with it the value of every single piece; he does not see that this is also the case with the unpaid labor contained in every piece, the less so since the average profit is in fact determined only accidentally by the unpaid labor absorbed in his sphere. "

↑ See John R. Bell: Capitalism and the Dialectic - The Uno-Sekine Approach to Marxian Political Economy. London, Pluto Press 2009, p. 45.

↑ According to Marx "Grundrisse", MEW 42, p. 601, only work that is directly attributable to the end products can be a measure of value. So planning, monitoring, etc., creates no value. In business administration this is known as the overhead problem .

↑ Paul Mattick , Maurice Dobb , Joan Robinson , Antonio Pesenti , Ronald L. Meek and Jacob Morris criticize in: Claus Rolshausen, (Ed.): Capitalism and Crisis: A Controversy about the Law of the Tending to Fall in the Rate of Profit. European Publishing House , 1970. ISBN 3-434-30113-5 . the first attempt at an empirical examination by Joseph M. Gillman: The law of the tendency of the rate of profit to fall. European Publishing House: 1969.

↑ Michael Vester : The emergence of the proletariat as a learning process. European publishing house: Frankfurt am Main 1970

↑ The tendency of the rate of profit to fall. In: Claus Rolshausen, (Ed.): Capitalism and crisis: A controversy about the law of the tendency of the rate of profit to fall. European Publishing House , 1970. ISBN 3-434-30113-5 .

↑ David Ricardo: About the principles of political economy and taxation (1817), p. 58 ff. Marburg: Metropolis-Verlag, ISBN 3-89518-540-X (2nd edition 2006) (original title: On the Principles of Political Economy and Taxation)

↑ Stephan Krüger, p. 414., p. 439 "the long-term development of the marginal efficiency of capital - alias rate of profit"

↑ See Stephan Krüger, pp. 144f.

↑ Klaus Müller: Profit . PapyRossa Verlag, Cologne 2016, ISBN 978-3-89438-606-1 , p. 97 -105 .

↑ Michael Heinrich: The science of value. 3rd edition 2003, Münster, p. 332

↑ Michael Heinrich: The science of value. 3rd edition 2003, Münster, p. 333

↑ Michael Heinrich: The science of value. 3rd edition 2003, Münster, p. 335

^ Geert Reuten and Michael Williams: Value-Form and the State - The Tendencies of Accumulation and the Determination of Economic Policy in Capitalist Society. London, New York 1989

^ John R. Bell: Capitalism and the Dialectic - The Uno-Sekine Approach to Marxian Political Economy. London, New York 2009. In particular, pp. 147f.

↑ Michael A. Lebowitz: Following Marx - Method, Critique, and Crisis. Chicago 2009, p. 101.

↑ ZB: Hartmut Elsenhans : “Wage increases. Growth opportunity for capitalism. A criticism of the law that the rate of profit tends to fall ”, in: Forum DS. Journal of Theory and Practice of Democratic Socialism. 1. Vol. 2 (1976), pp. 78-133.

^ John R. Bell: Capitalism and the Dialectic - The Uno-Sekine Approach to Marxian Political Economy. London, Pluto Press 2009, p. 107

↑ Michael A. Lebowitz: Following Marx - Method, Critique, and Crisis. Chicago 2009, especially p. 103ff.

↑ Alfred Müller, p 171ff.

↑ MEW 26.3, p. 356ff., Cf. Michael Heinrich, Die Wissenschaft vom Wert, 3rd edition, Münster 2003, p. 321. For Heinrich this is a claim that has yet to be proven.

↑ Cf. Alfred Müller: Die Marxsche Konjunkturtheorie. An over-accumulation theoretical interpretation. PapyRossa Köln, 2009 (dissertation 1981), p. 336ff.

↑ See e.g. B. Representation with the help of Lotka-Volterra equations Frank Schohl (1999): The market-theoretical explanation of the economy. Mohr Siebeck Tübingen.

↑ Cf. Frank Schohl (1999): The market-theoretical explanation of the economy. Mohr Siebeck Tübingen, p. 17

↑ See Emmerich Nyikos (2010). The capital as a process. Frankfurt am Main. P. 494ff.

↑ The term “structural over-accumulation” goes back to Klaus Peter Kisker , cf. Structural over-accumulation and the crisis of gainful employment , in: "Z", No. 31, 1997 (PDF; 35 kB)

↑ Cf. Thomas Weiß: Fall of the rate of profit and material reproduction - The law of the tendency of the rate of profit to fall in the light of today's growth models. Texts, Marx-Gesellschaft eV, under "Texts" spring 2010

[LZ-1] Lucas Zeise: Not a secular trend, but a cyclical phenomenon - On the interpretation of the law of the tendency of the rate of profit to fall. Marxist sheets issue 6, 2009.

[2] Alfred Müller, p 378ff.

[3] Stephan Krüger, p. 408ff., P. 414f.

[4] Stephan Krüger, p. 414f.

[5] Stephan Krüger p. 144, reference to MEW 23, p. 412

[6] Alfred Müller, p. 178, here reference to wage labor and capital , MEW 6, p. 418

[7] Alfred Müller, p. 103f.

[8] Alfred Müller p. 52

[9] See Stephan Krüger p. 272

[10] Cf. Karl Marx, Das Kapital III, MEW 25, p. 196 “(Only where production is under real, predetermined control of society, does society create the connection between the amount of social working time, related to the production of certain articles, and the extent of the social need to be satisfied by these articles.) "

[11] Georg Lukács (1972): Prolegomena. On the ontology of social being, 1st half volume, edited by Frank Benseler, Darmstadt and Neuwied; Georg Lukács, Prolegomena. On the ontology of social being, 2nd half volume, in connection with the Lukács Archive Budapest edited by Frank Benseler, Darmstadt and Neuwied 1986. p. 153 (can be downloaded from the Internet)

[12] Cf. Karl Marx, Das Kapital III, MEW 25, p. 181 “What the capitalist and therefore also the political economist sees is that the part of paid work that falls on the commodity per piece is related to the productivity of the Work changes and with it the value of every single piece; he does not see that this is also the case with the unpaid labor contained in every piece, the less so since the average profit is in fact determined only accidentally by the unpaid labor absorbed in his sphere. "

[13] See John R. Bell: Capitalism and the Dialectic - The Uno-Sekine Approach to Marxian Political Economy. London, Pluto Press 2009, p. 45.

[14] According to Marx "Grundrisse", MEW 42, p. 601, only work that is directly attributable to the end products can be a measure of value. So planning, monitoring, etc., creates no value. In business administration this is known as the overhead problem .