Technical Progress and the Falling Profit Rate: An Overview

G. Technical Progress and the Falling Profit Rate: An Overview

A necessary and sufficient condition for the tendency of the profit rate ultimately to decline within a Marxian framework is (1– β K )(1 + α) > 1 or α > β K /(1 – β K ), i.e., that the rate of increase in the physical capital-labor proportion exceeds β K (the rate of decline in P K ,) relative to (1 – β K ), a ratio equaling the rate of increase of 1/(1 – β K ) n (see note 10). This at first sight is a surprising property since β L , the rate of change in P L , does not appear at all. But of course β L is relevant; for example, a sufficiently low β L will assure

1−β K (1 + α) < 1 1−β L

i.e., falling value composition, precluding satisfaction of the necessary and sufficient condition. We have seen that β L <β K rather than the reverse can, ceteris paribus, transform a falling into a rising trend in R.

The condition in question concerns the behavior of L 100 , i.e., employment per $100 of capital invested; the ultimate course of R depends on this alone and those criticisms of Marx which emphasize that surplus per hour rises continuously as the value of wage-goods declines (i.e., that s/v → ∞) are invalid. But it is true that

Economic Growth and the Falling Rate of Profit

whether the condition is or is not satisfied is entirely an empirical matter: there is no a priori reason to justify a presumption in favor of falling R. 18

There is first the fact, of which Marx himself was so well aware, that the very existence of a large stock of capital promotes capital-saving innovation (cf. Rosen- berg 1976); there is no necessity for α > 0. 19 In this chapter, however, we have concentrated on the β K ,β L relation and have indicated that Marx himself seems to point to β L <β K as a long-term prospect, having in mind the likelihood of land exhaustion. This too mitigates against the falling profit-rate tendency. All in all, in deriving his “law” Marx insisted on rising c/v : his “forecast” might have been valid for conditions pertaining at his time, but not for those of a more advanced capitalism – one utilizing on balance capital-saving technology and running into land-exhaustion problems.

Let us take a broader view of these issues. Marx objected to Ricardo for identifying R and its variations with s/v and its variations (e.g., MECW 37: 49). 20 Marx wished, moreover, to avoid basing the falling trend of R on land scarcity – technological improvement was the order of the day within a capitalist organization. His new model takes into account the influence on R exerted by a range of cost variation – the cost prices of capital-goods proper and materials as well as of wage-goods. He apparently envisaged, at least for the distant future, a sluggish rate of decline of material and wage-goods prices relative to those of capital-goods in consequence of land exhaustion, and to this extent the land constraint comes back into the pic- ture. He blames the phenomenon on capitalist development not nature (see above, pp. 124–5), although this is not altogether convincing since co-operative or peas- ant farmers must also devote resources to avoid the problem. Schefold has pointed to the Economic Manuscripts, 1861–63, MECW 33: 290–1 (referred to above, in note 16), as an indication that Marx, in order to assure rising c/v, “retreat[ed] to a Ricardian explanation of the tendency of the rate of profit to fall,” notwithstanding his “scorn” for the technological determinism of Ricardo and Malthus (Schefold 1976: 818). But this is not quite so. It emerges from our discussion that a differential

18 The “empirical” perspective is emphasized by Sweezy. “The increasing rate of surplus value was obvious to Marx but the dominant trend was the quantum leap in the organic composition –

the transition in mid-century from ‘manufacture’ to ‘machinefacture’ ” (1987 [1973]: 43; see also Sweezy 1968). 19 There is also an intriguing observation regarding technological progress in chemistry – a modern science – which implies capital saving: “Every advance in chemistry not only multiplies the number of useful materials and the useful applications of those already known, thus extending with the growth of capital its sphere of investment. It teaches at the same time how to throw the excrements of the processes of production and consumption back again into the circle of the process of reproduction, and thus, without any previous outlay of capital, creates new matter for capital” (MECW 35: 601). 20 There is good reason for the objection (see Chapter 1). Ricardo erred by neglecting for the most part the negative effect on R of secularly-rising material prices. He was able to do so by an unstated assumption that materials are required only by industry; should materials be required in all sectors there is no way capitalists in any single sector can pass on the burden of rising costs to the consumer.

H. On Secular Underconsumption 129 against the extractive sectors – both materials and wage-goods production – has

on balance a positive effect on R by reducing the value composition of capital. Any additional constraint on the decline in wage-goods prices compared with those of materials acts further to maintain the profit rate, again by lowering c/v. It is true, however, that a positive increase in wage-goods costs (on which see nore 16) must –

whatever the levels of β K and α – generate an ultimate fall in the profit rate. 21 The “classical” source of declining R thus emerges from Marx’s theoretical model as a special case.