Tendency of
the Rate of Profit to Fall
Capital
Volume 3, Part 3,
The Law of the Tendency of the Rate of Profit to Fall
The
most well-known insight of Capital Volume 3 is the Law of the Tendency of the
Rate of Profit to Fall, often abbreviated to “TPRF”.
Chapter 13 (linked below)
describes the Law very directly and simply.
The
TPRF is not a mystical law. The TPRF is in the first place a consequence of the
simple fact that surplus value extracted from wage-workers is the only source
of increase, and profit is surplus value related to the cost of labour-power
plus all the capitalists’ other costs, or what Marx calls “constant capital” (where
wages are called “variable capital”).
The
tendency for these other costs (the “constant capital”) to increase over time in
relation to the amount of labour-power used is what causes the TPRF, the
tendency of the rate of profit to fall.
The constant
capital includes technology and the cost of technological inputs rises as more
scientific methods are used, in relation to the amount of labour applied.
This
produces an apparent paradox: When productivity rises, profits fall. The more
“capital-intensive” is a business, the less profit is made in proportion to the
amount of money invested.
Does
this mean that capitalism is going to fade away? Does it mean that there is an
entropy in play for capitalism, like the winding-down of the solar system? So
that profits will eventually reduce almost to zero, and the capitalist
relationship therefore become unsustainable and cease to exist?
Perhaps
Karl Kautsky might have thought so, but there are “counteracting influences”,
some of which Marx describes in the following Chapter 14 of Capital Volume 3.
Wikipedia (here) lists Marx’s ones as follows (and then
follows with some additional ones of its own):
- more intense exploitation of labour (raising the
rate of exploitation)
- reduction of wages below the value of labour power
- cheapening the elements of constant capital by
various means
- the growth and utilization of a relative surplus
population (the reserve army of labour)
- foreign trade reducing the cost of industrial
inputs and consumer goods
- the increase in share capital which devolves part
of the costs of using capital on others.
Do
the “counteracting influences” balance out the TRPF and produce a capitalist
equilibrium?
No,
not exactly. Instead, what we actually have is a very dynamic, unstable, and
finally political, living world. We have constant crises, contradictions,
and conflict.
“Marxism”
is for many purposes a hidden science in capitalist society. For example, the
business pages of newspapers seldom relate what is happening in businesses from
day to day to theories of surplus value. Marx gets a nod now and again but
mostly he is ignored.
But
it is not the case that in the world of economic theory, Marx is never
consulted by bourgeois economists. The terrain on which the parlay happens is
here, in Capital Volume 3. The TRPF and its countervailing tendencies are
familiar to bourgeois economists. They have their own variations on the problematisation
of the TPRF, or its equivalent as they see it, such as “the law of diminishing
returns”.
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